Just earlier this week, the Reserve Bank of Australia (RBA) announced that they would be lifting the official cash rate on a 25-point basis. This has been the ninth consecutive increase in interest rates and has brought the cash rate in Australia to 3.35%, the highest it’s been since September 2012.
As the RBA continues making efforts to return inflation to the target range of 2-3% as a top priority, Australia is likely to see even more in interest rate increases over the coming year.
As the cost of living continues to increase, some Australian homeowners may be worried about their ability to meet their mortgage repayments without going into mortgage stress.
What is Mortgage Stress?
Mortgage stress is when your monthly mortgage repayments consume more than one-third of your monthly income.
According to Roy Morgan Research, 22.8% of mortgage holders in Australia are currently at risk of experiencing mortgage stress, and 15% of households are considered “extremely at risk”.
However, there are steps you can take to make your mortgage repayments easier.
If you are a Perth homeowner in need of advice about your home loan, contact Southshore Finance. We are here to assist you and make this difficult financial climate easier to navigate.
Predictions for Perth Homeowners
The good news for Perth homeowners is that the WA property is in a great position to weather this latest increase when compared to the Eastern States.
According to the CEO of REIWA, Cath Hart, the recent interest rate rise will only have a moderate impact on the WA property market due to WA’s strong economy, low unemployment, population growth, and affordable housing. This is something that is expected to continue supporting the WA property market in the longer term. Despite some predictions of large price falls, REIWA also predicts low to moderate growth in the range of 2-5% over the year for the WA property market, with a quarterly update due in April.
This is not to say that WA homeowners will be immune from further interest rate rises, but it is important to remember that interest rates are not the only factor that impacts the property market, and the WA property market is in a good position to be resilient against further increases.
Fixed or Variable rate?
Fixed-rate mortgages can provide stability for your household budget but can limit your options during the fixed-rate period. Most lenders restrict extra repayments, the ability to redraw, and the use of an offset account. Breaking a fixed-rate loan contract may result in break costs.
Variable rate loans offer more flexible features such as the ability to make extra repayments, redraw facilities, and an offset account. Some borrowers choose a split facility, which involves locking a portion of their debt on a fixed rate with restrictions, while still having a portion on a variable rate with more flexible options.
In this February statement, the RBA have given a clear indication that there will be further rates rises. Just how many is anyone’s guess, with many commentators being surprised by the RBA’s comment. There are many indicators that the rate rises over the past year are having a negative effect on the economy and further rate increases could tip the economy into recession. If that happens it is likely that the RBA will be forced to reduce rates. The conundrum for most is: is it worth paying a premium of approximately 1% pa to fix for 3 years over a variable rate?
You can read more about fixed vs variable rates here.
How to Combat Interest Rate Rises
We have said this before, but we will say it again: the most important thing is not to panic. The Perth property market is well positioned to handle interest rate increases due to its strong economic factors such as low unemployment, population growth, and affordable housing. Now is an ideal time to be evaluating your options, researching the market, and making sure you’re getting the best deal.
Here are our some of our top financial tips for managing your home loan after recent interest rate increases:
- Consider getting an offset account
This is a savings account that’s linked to your mortgage. The money in this account offsets the amount you owe on your mortgage, helping you pay it off faster. - Plan your expenses
Review your budget and make sure your mortgage repayments match your regular income. This will help you avoid overspending and manage your costs. It is now more than ever the right time to be focusing on “making the right choices” when it comes to your discretionary spending. - Take advantage of refinancing offers
You may be able to get cashback or other incentives if you refinance your mortgage. Keep an eye out for these opportunities to save money. - Get expert help
If you’re feeling overwhelmed, reach out to a finance specialist. They can help you restructure your banking relationships, find the best deals, and provide valuable advice on how to manage your mortgage.
Do you need help?
Southshore Finance specialise in Perth residential development and construction funding. Our reputation and wealth of knowledge in finance industry enables us to review and restructure existing banking relationships so you can get the best terms and rates.
Contact us if you need help with your home loan.