• Posted on : 5 May 2022

Welcome to this edition of the Dot Update..

Interest rates – We’ve been receiving a lot of noise on the recent rate rise and what it looks for borrowers in the foreseeable future. I’d like to emphasize the point; we have been at the bottom of the interest rate cycle for some time now.

It was inevitable, the rates will increase, as the RBA will use this lever to control inflationary pressures we are currently experiencing.

Many clients are suggesting a potential fixed rate option. In my example below, I compare the current variable rate increasing by 0.25% every quarter over 2 years vs the current 2 year fixed rate of 4.09%.

The above will show you, with 8 interest rate increases under the variable option, this proves to be a more viable option. In the example, saving just under $10,000 over the 2-year term.

If you’d like a personalized spreadsheet of your current loan, please feel free to reach out. I’m happy to discuss this in more detail.

Income Growth To Cushion Rate Rises

ANZ bank analysis predicts wages growth and built-up savings during the pandemic will help cushion any impact of future interest rate rises.

Senior economist Adelaide Timbrell expects wages to continue to accelerate throughout any future interest rate hike cycle.

“We expect that unemployment will continue to fall, reaching a five-decade low of 3.3% later this year,” she says.

“This means that some of the impact of higher interest payments and reduced borrowing capacity will be offset by higher household incomes as interest rates rise.”

Timbrell says rate rises do not always result in lower property prices. She says between 2002 and 2008 when rates were rising, house prices increased by more than 50%.

“While we don’t expect to see such a strong run of housing prices through the impending tightening cycle, we do expect the correction in housing prices to be a moderate one, especially when compared with the rapid housing price growth over the last two years,” she says.

Price Cap Lifted For FHB Scheme

A lift in the price caps within the Federal Government’s Home Loan Deposit Scheme means home buyers will have a broader range of properties they can now buy.

The scheme helps first-home buyers purchase a property with a 5% deposit without needing to pay costly lenders’ mortgage insurance.

The cap will rise by $100,000 across capital cities and major regional centres, except in the ACT where it will increase by $250,000.

This will bring the cap to $900,000 in Sydney, $800,000 in Melbourne, $700,000 in Brisbane and $750,000 in the ACT. In Perth, Adelaide and Darwin it will be $600,000.

It’s expected the lifting of the caps will increase demand for apartments and entry-level houses.

Prime Minister Scott Morrison says increasing the caps means even more Australians will have the opportunity to buy their own home.

“Saving to buy a house has always been hard work and we know as prices have increased it’s been getting harder,” he says.


What has Dot been up to for the month?

Don’t forget to read up on the 15 year itch which is an E book I’ve authored to equip you with strategies to pay off your mortgage in under 15 years. The e book is available on the website or you can get in touch via email to request a complimentary copy.

As always, we hope you enjoyed reading the blog and should you have any questions, please feel free to email or you can call us on 1300 000 DOT (368).

Ask the experts highlights

Signup to our Finance Blog & Newsletter