The Dot Update - July 2022
Welcome to this edition of the EOFY Dot Update..
Rises won’t add to the cost of living
Interest rate rises may be front and centre for most borrowers at the moment, but the RBA says most households are well placed to absorb increases despite higher costs of living.
RBA governor Phillip Lowe says the July increase of 50 basis points to 1.35% will help bring down inflation over time.
He says RBA data shows households are generally well ahead on mortgage repayments, with financial stress “low and declining”.
According to the RBA many households increased their savings during the pandemic while interest rates were low.
Homeowners with variable-rate loans already have a median 21-month buffer on their repayments, compared with 10 months’ worth at the start of the pandemic.
RBA analysis indicates that even if variable rates were to lift by 200 basis points, more than 40% of borrowers are already making monthly repayments which are large enough to cover those increases.
It says many households have ample time to adjust to future hikes.
Renters Hit Harder Than Owners
Those who may be hit hardest by increasing interest rates don’t even own property, according to Domain chief of research Nicola Powell.
Powell says renters are the ones who may really start to feel the strain.
She says there is already a dire shortage of accommodation, with vacancies at rock-bottom levels, and if investors try to pass on all or some of the increased cost of their mortgages it is the renters who will struggle.
AMP Capital chief economist Shane Oliver says, with market conditions so tight and vacancy rates so low, tenants may not have too many other alternative properties to move to if their rent does increase.
“Or if they’d been saving up for a deposit, then it’s now going to be harder for them to buy,” he says.
RateCity research director Sally Tindall says tenants in areas where there are already shortages of rental accommodation may find themselves “throwing more money at rents” to keep their homes
NSW begins Stamp Duty Reform
First-home buyers in NSW will have a choice of paying upfront stamp duty or switching to an annual land tax, as the State Government starts a promised overhaul of transfer tax for residential property sales.
In a trend which is gaining momentum nationwide, NSW first-home buyers who choose not to pay stamp duty on the sale price at the point of purchase will instead pay a land tax fixed at 0.3% of the assessed land value plus $400 every year.
Premier Dominic Perrottet says the measure will make home ownership more affordable for FHBs and let more younger buyers enter the market as upfront costs will reduce.
For a home with a $1m land value, homebuyers opting for land tax would be exempt from $45,000 in stamp duty in favour of paying a $3,400 land tax a year.
The land tax “opt-in” scheme will spread some of the load of upfront housing costs – providing homebuyers accept they face an indefinite annual tax on the family residence.
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