Black and White Finance update - January 2018
Hey Black and Whiter's, as a property owner or as someone looking to get into the market, here’s what you should know in January 2018.
Are rates set to rise? How will this rise impact affordability? What are the cheapest rates going around? Where should we invest next? We visit these questions and more in this month’s update. Enjoy!
The property market has shown signs of a slowdown, with Corelogic showing negative growth for our average of national dwelling prices across major cities in December 2017. With a potential interest rate hike this year, even tighter lending parameters, limits to those buyers living overseas, and declining affordability, property growth will be a challenge to come by. Experts predict in Australia that we’re set for a year of very modest growth in the property market and in some areas, a downturn.
Are rates set to rise?
The official interest rate (the cash rate) didn’t change throughout 2017, remaining at a low 1.5 per cent. Strong competition has seen banks offer 3.59 to 3.79 per cent variable home loan rates on principle and interest repayments for an owner-occupied purpose.
Some experts predict that the economy will grow at approximately 2.75 to 2.85 per cent off the back of more jobs and higher wages, which should technically support household spending. What it means for Australia is that business conditions could improve causing the unemployment rate to drop, but it’s not happening yet according to data. If the economy does grow as predicted with more jobs and pay rises, the Reserve Bank could be forced to make a change. The Reserve Bank would need to slow this growth in the economy because anything more than the 2.75 - 3 per cent a year could lead to the annual rate of overall prices (inflation) to increase.
So, if rates do rise and the banks pass these increases on as they undoubtedly will, and quickly, we will see these historically cheap rates disappear. You’d better hope to have secured a very good variable life of the loan discount or, fixed a portion of your loan. Maybe even consider fixing the lot. The general advice would be for borrowers to think about the strategy involving fixing half and leaving the other half of the home loan variable. There are some incredible 2 and 3 year fixed rates starting at 3.79 per cent for your owner-occupied home loan. This at least sets you up to be protected if rates do rise and even if they don’t, well at least your other half is variable so your repayments on that half will be cheaper. Your mortgage broker must consider your goals, objectives, and needs before tailoring such a solution because these fixed-rate loans come with certain limitations.
If rates do rise, what will this do to affordability?
Sydney and Melbourne are ranked among the top five least affordable major housing cities in the world. For eight years in a row, Hong Kong is recorded as the least affordable housing city according to the Demographia International Housing Affordability Survey, with Sydney in the second spot.
According to some reports, mortgage stress has risen significantly in the last 6 months and by 20% even. This increase across the board could be due to many not being aware of the options available to them to refinance, consolidate debt or lock in a fixed rate to secure some of their repayments.
Even if rates do increase, it shouldn’t be by much, and so it’s anticipated that the property market could slow down, not crash.
Home loan rates will still be at historical lows; our population growth will continue and the added infrastructure going into most major capital cities should spur the market along modestly. If you’re looking for a city to invest in, recent data is showing that Hobart is sound.
Hobart still killing it!
We spoke about Hobart’s recent results in our November update. It’s the only capital city to reach double-digit annual growth in house and unit rental prices, according to Domain’s report for the final quarter of 2017. Strong population growth and limited rental supply, has made Hobart one of the best performing cities. The Prime Minister just committed $130 million in federal money to help springboard the University of Tasmania redevelopment, which is also very encouraging.
Maybe we all buy in Hobart and hold for the long term, we know they’ve got good food and great whisky!
We hope you've enjoyed the first Black and White Finance update for your year, before you go, please let us know what you think of our content, we’d love to hear from you.
Peter Vassilis