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Preston June 8,2022(TIE)Most forecasts were shocked by the Reserve Bank’s larger-than-expected interest rate hike to 0.85 percent, which pushed the stock market considerably lower and increased the stress levels of Australians with huge mortgages.
However, not everyone is a loser. This is how it will affect you.
REPAYING A MORTGAGE: If you’re one of the 38% of borrowers who have a fixed-rate mortgage, there’s no need to panic. However, given that rates have already risen 0.75 percentage points since May and are expected to rise more, you may be in for a rude awakening when the fixed period expires. This will most likely happen in late 2023, so there is still time to prepare.
FIRST-TIME BUYERS: Paying off a mortgage is becoming considerably more expensive, and banks are lowering lending ceilings for first-time buyers because they employ a 3% serviceability buffer above current variable rates when assessing people’s ability to repay. New government incentives, greater interest rates on home deposit savings accounts, and the prospect that house prices will fall further from their lofty heights as housing demand decreases will benefit many buyers.
RENTERS: Tenants are indirect victims of interest rate spikes since the homes they rent are often owned by landlords who have substantial investment loans to repay and may pass on a portion of the cost of the rate hike. The rent rise may not reach tenants immediately away because many investors’ loans have fixed rates, but it will.
SELLERS: The Reserve Bank has predicted that if interest rates rise by 2%, housing values will fall by 15%. With Tuesday’s strong gain, we’re now up 0.75 percent. It’s not a good time to be a seller right now, especially if you expect your home to generate the same amount of interest as it did in 2021. People who sell and purchase in the same market at the same time are less likely to see price drops in the short term. The low unemployment rate in Australia should also reduce the amount of forced sellers.
Mortgage-free owner occupiers-There’s finally something to cheer about for those who spent years working hard, paid off their mortgage, and are now retired or heading that way and hoping for higher returns on their cash in the bank. Savers have struggled with paltry rates on bank deposits for years, and the prospect of interest rates rising back towards normal levels means their cash may no longer be going backwards after the impacts of inflation and tax.
