The Reserve Bank of Australia (RBA) has announced another hike to the cash rate in September from 1.85% to 2.35%.

This takes the total increase in the cash rate this year 2.25 percentage points, up from a record-low of 0.1% in May.

With this increase, we have seen interest rates for home loans increase across the board for both fixed and variable rates.

People with a variable-rate loan will already have felt the hit to their hip pocket, but there are options available to them to help save money.

For a start, there is the option to negotiate with the current lender to see if it can offer a lower interest rate, and if it can’t, comparing with others to see if it is worth the switch.

How much could you save with a lower interest rate?

From May until August, homeowners on variable-rate loans could have seen interest rate hikes of around 1.75 percentage points, depending on their loan. What does this look like in repayments?

If you had a $500,000 loan with monthly principal and interest repayments over a 30-year term and your interest rate increased from 3% p.a. to 4.75% p.a., your repayments would have increased from $2,108 to $2,608 – an increase of $500. If that loan was $1 million, repayments would have increased from $4,216 to $5,216 – an increase of $1,000.

So what difference can negotiating a lower interest rate make to your repayments?

Decreasing interest rates from 4.75% p.a. to 4.5% p.a. would reduce monthly repayments by:

$500,000 loan: $75

$1 million loan: $149

Decreasing interest rates from 4.75% p.a. to 4.25% p.a. would reduce monthly repayments by:

$500,000 loan: $148

$1 million loan: $297

When we look to get you onto a better rate, there are a number of ways we can go about it. First, we can look to negotiate with your current lender. Alternatively we can look at the broader market at over 60 lenders to see if you could be better served elsewhere. This is repricing or refinancing.

Repricing versus refinancing

When we negotiate with your current lender to get you on a better deal, that is called repricing. This can be a straightforward process and your interest rate or fees change, but the lender remains the same.

If we find you a better deal with a different lender and move you across, it is called refinancing. Many lenders offer lower interest rates to new customers, and/or cashback incentives where they offer money for you to move your loan to them. This will need to be weighed up with any potential fees charged in the change, so we will run the calculation for you and let you know if it would be beneficial for you over the longer term.

Beyond interest rates

Another thing to keep in mind is that interest rates aren’t the only way we could look to save you money. Lenders also charge fees depending on your deal. We can evaluate the current loan you are on and assess whether the features are still serving you. For example, if you have a package deal that includes a credit card and offset account, moving to a more basic loan that offers a free redraw facility could still suit your needs but potentially save you money in fees.

Getting pre-approval for your home loan can give you an understanding of your borrowing power and confidence your lender is satisfied with your preliminary application. It means it is time to get out there to find your home.

To help you on your way, here is a quick overview of what your pre-approval means.

The basics

A pre-approval is basically the lender giving you the heads up that they feel comfortable lending a certain limit to you, based on the circumstances we presented to them. There is no obligation for you to take out the loan and equally, the lender is not guaranteed to approve the loan approval – particularly if your circumstances change. It does, however, help you to refine your property search, bid with confidence and show vendors you are serious about buying.

How long is pre-approval for and what can I do if it is expiring?

In general, pre-approval can be around two or three months, depending on your lender. Your paperwork sent separately will outline the expiry date of your pre-approval.

If the expiration date of your pre-approval is approaching, reach out. We can discuss your options and since we already have your documents on hand, can potentially fast-track an application for an extension or a new pre-approved product.

Are there limitations to a pre-approval?

It is important to note the pre-approval is conditional (and based on your circumstances at the time of application), and not an absolute guarantee of being approved for the loan. That said, we will work with you to do everything in our power to get your finance across the line, and the pre-approval is a solid indication the lender is comfortable lending to you. If any of your circumstances change, let us know and we can discuss whether this could change your application.

Some lenders have restrictions around the type of property you can purchase and will also conduct an evaluation before the loan is approved to ensure it is satisfied with the value offered. Some limitations can include:

Does my pre-approval change if interest rates rise?

Small changes in interest rate increases are unlikely to impact your pre-approval as the lender will take this into account as a possibility when assessing the approval. However, pre-approvals are conditional, meaning if there are major changes between getting the pre-approval and applying for the loan – such as changes to your income or interest rates increasing significantly – your borrowing power and loan application could be impacted. Because of this, it is a good idea to speak with us before making an offer on a property and including a finance clause in any home purchase contract.

I found a property I like. What next?

If you’ve found a property you believe is in your price range, it is time to make an offer. Reach out to us first to ensure it satisfies the lender’s criteria and to receive your free property report. This report shows you the previous sales data of the property as well as recent transactions in similar properties nearby to give you an indication of what the property you like may be worth.

The way you make an offer, and the legalities around how binding the offer is, depends on the type of sale. For example, auctions are unconditional so your bid is binding. If you are asked to make an offer on a property on a contract, or your bid is accepted and you are sent the contract, speak with your solicitor or conveyancer to ensure you are satisfied with any conditions, including cooling-off periods and building and pest inspections. Even though you have pre-approval, it is usually a good idea to include around ten days for finance approval, but speak with us if you have any questions about this.

Remember to let the real estate agent know you have pre-approved finance so they know you are serious and likely able to move quickly. This can give you a competitive advantage.

My bid was accepted. Now what?

Congratulations! This is an exciting time, and the next few weeks will be busy to lock everything into place ready for settlement. Firstly, contact us to let us know and we can let you know what comes next. 

You will usually be required to pay a deposit to secure the property. For auctions, this is often a 10% non-refundable deposit, and for other sales it can be 25% of the purchase price. Make sure you have this deposit money ready to go, and understand what you need to do based on your contract. Your solicitor or conveyancer can help with this.

Once we have a copy of your signed contract, we will work with you and your chosen lender to get your loan formally approved and finance ready by your settlement date. We will keep you updated every step of the way.

The Bureau of Meteorology has warned there is a 70% chance of La Niña returning this spring.

The bureau’s three-month climate outlook shows a high chance of above-average rainfall for most of the eastern two-thirds of the Australian mainland between September and November. 

“With wet soils, high rivers and full dams, and the outlook for above-average rainfall, elevated flood risk remains for eastern Australia,” it said.

Given the warning, this would be a good time for home owners to:

If you are in the market for property, this is also a reminder to consider whether it could be impacted by weather events and what insurance premiums  could be to obtain adequate cover for that property.

How the new climate bill will affect real estate

Meanwhile, Real Estate Institute of Australia President Hayden Groves said the Federal Government’s new climate change bill would have implications for the housing market.

The Climate Change Bill 2022 has cleared the House of Representatives, but still needs to be approved by the Senate. Assuming it does, the new legislation is likely to bring forward increased emissions reduction drives by governments and their business partners, according to Mr Groves.

“This is likely to manifest in the energy space and an enhanced focus on residential disclosures,” he said.

“And with that, the government hopes, so too will consumer preference and markets. Already, there is an emerging body of research that shows that homes demonstrating sustainable features currently command a premium.”

Mr Groves said despite the new climate legislation, Australia would still experience extreme weather events.

“Resilience and preparation measures will need to be increased by homeowners and principals to protect their homes and shopfronts from continued erratic weather,” he added.

Want to flood-proof your home or make it more energy-efficient? I can help you finance the renovations. Get in touch to discuss your options.

Inflation is both impacting the housing market and itself being impacted by the housing market.

CoreLogic Head of Residential Research Eliza Owen said one way in which inflation impacts the housing market is that it erodes the value of debt, making it easier to repay a mortgage. That’s because $1 today is worth less than $1 in the future, as inflation reduces the value of that $1.

On the other hand, inflation also erodes the real value of housing. 

Australia’s median property price rose 11.2% in the year to June, according to CoreLogic, while the inflation rate during the same period was 6.1%, according to the Australian Bureau of Statistics (ABS). So the ‘real’ increase in property values during that time was only 5.1% (i.e. 11.2% minus 6.1%).

Ms Owen said there is an inverse relationship between the Reserve Bank cash rate – which influences home loan interest rates – and changes in home values.

“As interest rates rise, and economic activity slows, inflation may be reduced. A consequence of this is that borrowing money to buy housing becomes less desirable, which in turn slows purchases and prices in the housing market,” she said.

How housing impacts inflation

Ms Owen said the ABS ignores several housing-related costs when calculating inflation.

Changes in the price of buying land, buying established homes and serving a mortgage are not factored into inflation calculations.

However, the ABS does factor in other housing-related costs, such as prices for:

Unsure how rising prices and interest rates might affect your home loan? Feel free to get in touch and I’ll be happy to crunch the numbers for you.

 

The cash rate has been increased by the Reserve Bank of Australia (RBA) for the fourth month in a row from 1.35% to 1.85%.

Since the RBA’s first increase of the cash rate from its record low of 0.1% in May, we have seen interest rates for both variable and fixed home loans increase across the board. For example, looking at one major bank, the interest rate for its standard two-year fixed rate home loan (for an owner occupied loan paying principal and interest with <80% LVR) was 3.09% p.a. in March (comparison rate 3.01% p.a.), but 5.49% p.a. in July (comparison rate 4.47% p.a.). Its standard variable product was 2.99% p.a. in March (comparison rate 2.99% p.a.), but 4.24% p.a. in July (comparison rate 4.24% p.a.).

Is now a good time to fix my home loan?

As interest rates across the board are continuing their upward trend, anyone on a variable rate will have noticed their repayments have increased. The idea of a fixed rate with locked-in repayments may be appealing, especially with predictions the cash rate will only continue to rise.

The decision around whether it is a good time to fix your home loan will depend on your circumstances and preferences. There are a number of considerations and it is a good idea to speak with a broker to determine what is right for you.

An important note is that variable rates are not the only interest rates that have increased – fixed rates have also increased substantially over the last few months. In fact, as of the end of July, a $500,000 with a 20% deposit paying principal and interest could fetch variable rates in our panel under 3% p.a.. Compare this to fixed rates where the lowest rates were just under 4.5% p.a. for a one-year fixed loan, a number of two-year fixed products were 4.99% p.a., and a five-year term offered interest rates over 5% p.a.. 

Variable rates are likely to continue increasing in this environment as the cash rate increases, though currently a number of these loans are offering considerably lower rates than the fixed-rate products.

What other options are available?

Your broker can talk you through a variety of options that could potentially save you money on your loan. 

We can review your current loan structure to see if it is still serving you. For example, some packages charge a fee for access to features such as an offset account, whereas a more basic package may have lower fees but provide a free redraw facility (the ability to withdraw money that has been paid above the minimum repayments). We can see if a more basic package could suit your circumstances and save you money.

There are a number of cashback deals available, where lenders pay you money for switching your loan to them. We can review the deals available and weigh up your total potential savings for switching and whether this could be a worthwhile strategy for you.

A big opportunity is also for people who have recently come out of a fixed-rate loan or interest-only loan. These typically automatically revert to a lender’s set variable-rate package that may not be the most competitive or suit your needs. A broker can compare this to others on the market and either negotiate a better deal with your existing lender, or find a new one.

What if I’m looking to buy?

The good news for anyone looking to get into the market is that property prices across the country have decreased or stagnated. Ray White Chief Economist, Nerida Conisbee said the market had slowed considerably since the end of last year.

“Nationally, the median has gone up by 3.2% over the past six months, however in Sydney and Melbourne, prices have come back 1.4% in both cities,” she said.

“Elsewhere conditions are still mixed – in Adelaide for example, prices have continued to climb at a fast pace. Depending on what data set you are using, the extent of the slowdown differs, however there is consensus that as interest rates start to rise, we are at the start of a new cycle.”

House prices in Sydney and Melbourne have seen a drop over the last quarter, with prices decreasing 2.7% and 0.9% respectively to June, according to data from Domain. The other capitals continued to see growth over the quarter:

The slow in growth means there is less competition and buyers can breathe when deciding whether to make a bid, compared to the fast-paced market we experienced a few months ago. 

If you already own property, housing prices are still up year-on-year across the board, meaning if you’ve owned the property for at least 12 months, it is likely you will have experienced some growth in value.

The increase in the cash rate is also good news for savers who are likely to see increased interest rates on their savings accounts, which could help save for a deposit faster.

If you are looking to purchase, reach out to find the right loan for your needs.

Data just released shows a large number of Australian home owners are facing a significant increase to interest rates when their fixed-rate term ends.

Investment bank Morgan Stanley estimated that the big four banks have originated more than $550 billion of fixed-rate loans since the 2018-19 financial year, and that about $400 billion of these loans (or 73%) will expire and convert to variable interest rates by the end of 2023.

Based on Reserve Bank data, Morgan Stanley found that the average fixed-rate borrower was paying 0.65 percentage points less in interest than the average variable borrower in May 2022. So if, as some economists expect, the Reserve Bank increased the cash rate by between 1.50 and 2.00 percentage points by the end of 2023, borrowers who moved from a fixed to a variable loan could face a rate rise of between 2.15 and 2.65 percentage points.

What can you do if you have a fixed-rate loan?

Firstly, it is important to note the expiry date of the fixed term on your loan. This is the date the loan will convert to a variable rate, which may not be a competitive rate or have the features you want. A few months out from that time, we can play hardball with over 60 lenders to find the right deal for you to move to at the end of your term.

Secondly, we can have a look at your loan to see if there is any flexibility in paying your loan off faster. If not, you may choose to put aside as much as you can while paying a lower interest rate, to then put toward paying off the property when moving to the next loan, which can help lower your loan-to-value-ratio (LVR).

The end of a fixed-rate term is a great time to re-evaluate your financial goals to work towards an appropriate solution. Your increased equity in your property could entitle you to a more competitive interest rate, or you may wish to refinance to free up funds for other needs, such as renovations.

Whether you are just beginning your property-purchase journey, or adding to your portfolio, a common stressor is determining how much to offer and how to put your best foot forward when there is competition. As we arguably enter a slightly better buyers’ market than the start of the year (house price growth as a national average has stagnated or declined and listings are up year-on-year), there may be more time to breathe and consider your approach to putting in an offer.

An important thing to keep in mind is to only ever bid within a range you know you can comfortably afford, regardless of emotional attachment to the property. To determine your comfortable range, it is a good idea to speak with a broker who will calculate your borrowing power and show you how much your repayments will be. It is also important to factor in potential rising interest rates and ensure you have a buffer, so you can be confident you can meet repayments into the future.

You might also consider getting pre-approval for your home loan. This can give you confidence when making an offer by understanding the total amount your chosen lender is likely to approve you for once your bid is accepted.

Once you are aware of your borrowing power and are confident you are comfortable with your potential repayments, the bidding can begin. Here are some quick tips to help you on your bidding journey.

    1. Keep an eye on the market. See what other, similar properties in the area are selling for to give you an idea of what is a good deal and what may be overpriced.
    2. Reach out for a property report. I can provide this free of charge, showing the approximate value of the property you are interested in and listing other recent sales in the area.
    3. Attend open homes. Even if you don’t think you want to bid for that property, it can help to understand demand in the area.
    4. Create a shortlist. By having a few homes on the radar you could be less likely to develop an emotional tie to one, which can lead to bidding higher than you were comfortable with.
    5. Research the property. It can pay to view your council’s natural disaster maps and flood zones to see if the property could be impacted. You may want to speak to an insurer to get a quote to find out if there are unexpected exclusions for that area, or if statistics such as crime rates could increase the premiums.

If you’re heading to an auction, Ray White Frankston Principal, Ashley Weston gave the following tips.

If you’re preparing to make a bid, feel free to reach out for a chat for more tips about determining the amount you can offer and ways to improve your chances of being accepted.

 

The Reserve Bank of Australia (RBA) has continued its trend of increasing the cash rate, moving it for the third month in a row from 0.85% to 1.35%.

According to our data, all lenders in our panel increased variable interest rates on home loans in line with the cash rate increase last month. This means homeowners with variable rates or split loans will have already noticed an increase in repayments.

On top of this, we are also seeing fixed rates increasing across the board, particularly in the shorter terms. For example, NAB recently increased one-year fixed rates for owner occupier principal and interest (P&I) loans by 1.1 percentage points and two-year fixed rates by 1 percentage point. CommBank just hiked all its fixed rates for owner occupier and investor P&I loans by 1.4 percentage points. This means people looking to refinance will find interest rates have significantly increased regardless of the type of loan you are considering.

What can I do if my repayments are getting too high?

If you find your repayments have jumped to a level you find difficult to repay, it is a good idea to review your options. 

For example, speaking with a broker could help determine whether refinancing is right for you. While lenders across the board have increased rates, there are a number of cashback offers, where a lender will provide a cash payment to refinancers who make the switch. We may also be able to negotiate a better rate for you as a new customer, or for if your equity has increased.

Other ways a broker may be able to help include:

Silver lining for buyers: property market cools

While home loan interest rates have been climbing, on average, house prices across capital cities have decreased over the last month. Sydney house prices dropped 1.6%, Melbourne prices dropped 1.1% and Hobart 0.2% over the month to 30 June. Brisbane has slowed with house prices growing only 0.2% over the time frame, Perth grew by 0.4%, Darwin 0.9%, Canberra 0.3%, with Adelaide showing the biggest growth of 1.3%.

This could be good news for investors and buyers as it signals decreased competition. The increase in the cash rate is also good news for savers who are likely to see increased interest rates on their savings accounts, which could help save for a deposit faster.

If you are looking to purchase, reach out to find the right loan for your needs.

 

Many homeowners set up their home loan repayments to automatically be debited from their account – knowing they are slowly chipping away at their debt without needing to put much further thought to it.

However, this set-and-forget mentality could actually cost you thousands in interest repayments. How? Because interest rates are constantly changing and many lenders are offering deals to entice borrowers across, meaning there could very well be a lower interest rate available to you. When was the last time you compared your home loan? If it has been more than a year, then it is a good idea to get onto it.

Finding a lower interest rate isn’t the only reason why you may choose to refinance your home loan. By comparing your options you may also be able to find a loan with more features that you want, free up equity or you may be able to consolidate multiple debts into one.

Here are four of the key reasons you may consider refinancing your home loan.

1. Find a more competitive interest rate

One of the most common reasons homeowners look to refinance their mortgage is to get onto a more competitive interest rate. With a lower interest rate you could lower your monthly repayment without altering the amount of interest you pay over the term of your loan, or maintain your repayments but pay your loan off sooner.

The interest rate isn’t the only consideration when refinancing. Some lenders offer home loan refinancing deals to entice borrowers. These often come in the form of a cash payment or waived fees. A cashback deal should not be the main determinant of whether you switch to a lender, but can be factored into the calculation of how much you could save you over the life of the loan.

2. Access equity

If you have a need for additional funds, such as to conduct renovations on your home, you may be able to use equity built up in your property. This could be done through refinancing your loan amount by leveraging the equity as security, or potentially accessing a line of credit loan, which allows the borrower to take out funds up to a certain limit at any time.

3. Make use of features

Not all home loans are equal – some come with features attached that may be useful for some borrowers. For example, some may offer an offset account or redraw facility that can enable you to put more money toward paying off the loan, which will save you in interest, but access it if you need it. Note that often these features come at an additional price tag, so it is a good idea to calculate the potential savings while considering the fees. 

4. Consolidate debt

If you have multiple debts, such as credit cards, car loans or personal loans, it may be a good idea to consolidate them into one. This could merge repayments so you only have one and potentially get your other debts into a loan with a lower interest rate.

When can you refinance a home loan?

There is no hard and fast rule around when you can refinance your home loan. The key consideration is fees. For example, if you currently have a fixed-rate loan, you will likely incur break fees if you wanted to refinance. There are also fees such as application and discharge fees, property valuation fees and more. Because of this, it isn’t particularly common for people to refinance in their first 12 months – though it is possible.

Other common triggers for people to consider refinancing are major changes in your life, such as marriage, death in the family, birth of children or a change in career, you may choose to look at your options to refinance. 

It is a good idea to regularly conduct a health check on your home loan to ensure you have a competitive interest rate and are getting the most out of your features.

Speak with your local mortgage broker about whether it is a good time for you to refinance and to set your strategy to achieve your financial goals.

The Reserve Bank of Australia (RBA) today moved the official cash rate for the second month in a row from 0.35% to 0.85%.

Last month the bank increased the cash rate from the historic low of 0.1%, where it had been since November 2020.

Since last month’s cash rate increase, 97% of lenders in our panel of over 60 lenders, including the big four banks, increased their variable rates in line with the .25 percentage point jump.

This means homeowners on variable rate loans are likely already paying more each month in interest rates. For example, someone who had a 3% p.a. variable interest rate on a 25-year term of the average home loan amount of $611,524 would be paying $80 more per month, prior to today’s announcement.

Should lenders increase variable interest rates in line with today’s cash rate increase, the home owner in the example above could be paying $244 more per month than before the two cash rate increases.

Why is the cash rate increasing?

The RBA first increased the cash rate last month following the release of data that showed inflation in Australia hit 5.1%, meaning the cost of goods and services has risen steeply in the last quarter.

By increasing the cash rate, the RBA hopes to cool inflation.

However, a complication to this plan was the release of data that showed wages grew by only 2.4% over the quarter to March. This means real wages have decreased since inflation has grown by more than wages.

Governor of the RBA, Dr Philip Lowe said while inflation in Australia was lower than most other advanced economies, it was higher than earlier expected.

“Global factors, including COVID-related disruptions to supply chains and the war in Ukraine, account for much of this increase in inflation,” he said.

“But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to the upward pressure on prices.”

He said today’s increase in interest rates would assist with returning inflation to target with future raises likely in the months ahead.

Lenders tighten lending requirement

A number of lenders have announced they will be stricter in lending requirements. For example, ANZ said it would no longer take applications from borrowers with a debt-to-income ratio of 7.5 or more. NAB said it would not take applications from borrowers with a debt-to-income ratio of eight or higher.

What about fixed rates?

We are also seeing fixed rates going up across the board. For example, according to Loan Market data, Commonwealth Bank increased one, two, three, four and five-year fixed rates since November last year. Its three and four-year term fixed interest rates both increased by 2.3 percentage points over this period.

How can I help?

With interest rates and lending requirements changing across the board, now is a good time to evaluate your home loan. We can compare your loan to a panel of over 60 lenders to help determine whether you could be on a more competitive deal and could be saving money.