How concerned should you be as a Perth homeowner?

The housing market has been a popular subject of discussion recently, with much attention being paid to the impact of rising interest rates on homeowners. On March 7th, 2023, the RBA announced its 10th consecutive rise in interest rates, resulting in a further increase of 25 basis points, bringing the cash rate up to 3.60%.

While there has been a lot of pessimism regarding this news, in this article we aim to delve deeper into this issue and analyze the effects of increasing interest rates on different categories of homeowners – from first-time buyers to established homeowners. Our goal is to provide a comprehensive understanding of how rising interest rates will affect your mortgage, and what you can do to prepare for these changes.

So, whether you’re a first-time buyer or an experienced homeowner, read on to find out how these changes will impact you.


1. First Home Buyers

If you’re a first home buyer, you may be feeling discouraged by the RBAs recent string of interest rate rises. However, believe it or not, there are still opportunities for you to enter the property market.

First home buyers might find it reassuring to know that the Perth market is actually quite stable. Unlike many cities in the Eastern States, Perth’s property prices have been resilient to changing market conditions and are likely to remain this way due to Perth’s strong economy. REIWA has even predicted a 2-5% growth in Perth property prices in 2023.

Remember that as a first home buyer you are at the beginning of your property ownership journey. Property investment is often referred to as being decades in the making, not year by year.

Learning to budget is a critical skill for all borrowers, but none so more than first home buyers. An exercise we encourage first homeowners to undertake prior to purchasing a home is to work out how much higher their mortgage payments are likely to be than what they are paying in rent, and then putting the difference into a savings account (i.e., start living as if they were already paying a mortgage). This exercise not only proves to them that they can adjust their lifestyle to meet their commitments, but also helps increase their savings to go towards a deposit.

First home buyers

For those who have not yet bought but are considering purchasing a property in the next 12-18 months, this is also an excellent time to be taking advantage of rising interest rates with a savings account. Consider shopping around to make sure you are getting the best interest rate possible on your savings account from your bank.
Another factor that can help first home buyers in Perth is the amount of government support currently available.

There are several government schemes first home buyers may be eligible for that will help them secure their first home, including the First Home Owner Grant (FHOG), First Home Guarantee (FHBG), First Home Super Saver (FHSS), and stamp duty concessions. These incentives can significantly reduce the cost of purchasing a home and make it more accessible to first home buyers.

By taking advantage of this combination of factors, first home buyers can still achieve their dream of owning their own home, even with rising interest rates.

If you are a first home buyer looking at the Perth property market, it’s important to understand your options and seek advice from professionals.

Contact Southshore Finance to arrange a free consultation with one of our experienced Perth mortgage brokers. We can discuss your circumstances and help you navigate the home buying process.


2. Established Homeowners

For established homeowners, rising interest rates may not have as significant an impact as it would on first-time homebuyers.

If you have been consistently making your mortgage payments, the remaining balance on your mortgage may be lower than what it was when you first purchased the property. This means that the impact of interest rate changes may not be as severe as you might expect.

However, this is not to say that interest rate changes will have no effect on your mortgage repayment and household spending. With record low-interest rates during COVID, rising rates may lead to having to evaluate your household budget. This includes assessing whether your spending is in line with your top priorities, and evaluating whether your household income is in line you’re your financial goals.

If you are still struggling after you have done this, your position as an established homeowner should still give you several options such as renegotiating the interest rate, extending the loan term and consolidating other debts into the mortgage.

If you purchased your home five or more years ago, you will most likely have realized some capital growth, even if it’s less than what you hoped for. This will make it a lot easier for you if you are wanting to refinance, consolidate debts, or even downsize to reduce your mortgage repayments.

Whatever you decide, if you need help, contact Southshore Finance. We offer free mortgage broker consultations to help our clients make the best financial decision for them.


3. Landlords and Investors

There is good news for Perth landlords and investors, as the WA market has proven to be resilient to market changes and is even predicted to continue growing by 2-5% in 2023. Historically low vacancy rates, driven by a lack of stock and an increasing population, underpin a strong market for property investors.

While this growth rate may not seem to keep up with inflation, it’s important to remember that houses are a medium to long-term investment. It’s not advisable to get too hung up on short-term market fluctuations.

landlords and property investors

Investing in property is a long-term game, and as an investor, you should focus on the big picture. Over a period of five to ten years, the effects of price declines usually balance out. If you’re selling and buying in the same market, the impact of price declines may not be as significant as you might expect.

If you are considering selling in the current market, you should seek professional advice to make an informed decision. Contact Southshore Finance for guidance on how to make the most out of your property investment loan.


4. Homeowners who bought over COVID

Homeowners who bought over COVID are a minority of the market but may feel the most significant impact from the interest rate rises. This is a group of homeowners that has come into the market during the peak in terms of property values and may not have a lot of built up equity.

During COVID, you might even have fallen into the trap of leveraging record low-interest rates to borrow more than you could repay. As interest rates now increase past what they have been in years prior, those who overborrowed may be struggling the most.

The good news is that negative equity is not expected to be a major issue in WA due to the resilient market, which is predicted to grow by 2-5% in 2023, according to REIWA.

If you find yourself struggling, you have options available.

We can organize a new valuation of your property at no cost, which may show that you do not have as much, if any, negative equity you might’ve thought you had. We can help you look at refinancing and debt consolidation options, or whether you could be selling other assets to increase your available cash.

Due to slowing of the market, there are also offers from major banks that might help you with your home loan, such as ANZ’s $4000 cash rebate. We will look at all options in the market to ensure that your best interests are being served.

There are a number of costs associated with downsizing, such as selling agents fees and stamp duty. This is not to mention that it can also be incredibly emotionally difficult to selling the home that you thought would be where your family would grow in years to come. For these reasons, downsizing should only really be considered as a last resort unless it fits in with your changing lifestyle anyway.


Relief may be on the horizon

While interest rate increases can be concerning, there is hope for those feeling the pinch. The Perth property market has shown resilience to changes, and the latest commentary suggests that relief may be on the horizon with the possibility of interest rates coming down later this year or early next year.

So, if you’re currently experiencing financial strain due to mortgage repayments, remember that you won’t be having to make budget sacrifices forever, and that there are options available to you.

Don’t hesitate to seek the advice of the Southshore Finance Team who can help you find the best solution for your individual circumstances. With the right approach, you can overcome current challenges and build a strong foundation for future wealth creation.


Need support?

Southshore Finance offers no-obligation consultations with our Perth financial experts. We don’t charge for this service, we are simply here to help our clients through these challenging times.
Whether you’re a first-time homebuyer, investor, or established homeowner, don’t hesitate to contact us if you need help.