Banks easing, as rates, property & wages rise
The federal government's recent rise to the national minimum wage, along with stronger than expected monthly inflation figures for April, has led economists & money market traders to believe we will most certainly see more rate rises this year. The banks, who are now cutting back on their refinance cash back offers, will pass on rate rises if they eventuate but on a more positive note, they are also now more lenient with servicing requirements if you’re looking to refinance. With the fixed rate cliff in full swing, it’s more important now than ever, to know which bank is loosening up policies to help people in need. If you’re purchasing though, the same old 3 per cent servicing buffers apply and if you’re a first home buyer, there’s the NSW Labor government changes to stamp duty to be aware of.
Just how many more rate rises are there?
The minimum wage increase of 5.75 per cent will impact about one in five workers. Will it flow through to wages in general, and will it exacerbate the inflation problem? Reserve Bank of Australia (RBA) Governor Philip Lowe has warned that it just may worsen the situation, so he wants to see this increase in wages matched with productivity. Basically, he wants productivity (widgets produced) to match the demand that could result from more money flowing through the economy with people now on higher wages.
Economists from RBC, Goldman Sach’s, CBA, AMP, and NAB, believe that even if the RBA holds and doesn’t increase rates on Tuesday this week (6 June 2023), they may raise rates another two times after that, taking the current cash rate from 3.85 to 4.35 per cent by the end of the year, with cuts now penciled in for mid-2024.
The reason the RBA may not increase rates next week though, is because housing approvals are at 11-year lows, construction activity is at 9-year lows and unemployment is expected to worsen. And while we haven’t seen data that suggests that the major banks have had an increase in mortgage delinquencies, the unregulated non-bank home loan lenders now are starting to see a rise. This is up from a very small base but it is data that the RBA will be paying particular attention to.
Cash backs being cut and out of cycle rate increases
The last few weeks have seen the banks, bring an end date to their cash back offers. ANZ is the only one of the 4 major Australian banks yet to announce an end date for their cashback whilst second tier lenders including ING, Suncorp, AMP, Bankwest and Ubank have all called time on these initiatives.
On top of scrapping cashback initiatives, a number of banks have also started to increase rates for new to bank customers outside of the RBA interest rate cycle due to their own cost of funding pressures. This means that some new to bank customers applying for a loan today are not receiving as large of a discount as those who applied only a week or two ago and thus effectively paying a higher rate.
With higher rates for new to bank customers and cash back offers being scrapped, one could argue some of these banks are calling a ceasefire to mortgage wars, looking to move towards more effectively protecting their profit margins.
NSW government to raise stamp duty thresholds
The NSW Labor Government confirmed it is removing the property tax option and expanding the stamp duty threshold. From 1 July 2023, first home buyers will no longer be able to elect to pay property tax instead of stamp duty. Instead, stamp duty will be waived entirely for purchases up to $800,000 and then discounted for purchases between $800,000 to $1,000,000. From $1,000,000 and above, there's no benefit.
Last month we covered these likely NSW First Home Buyer changes in more detail and you can click here if you missed it.
With the population growing at a soaring rate, industry experts suggest there’s just not enough supply or listings, to meet this demand, and the data evidences this notion. CoreLogic’s 28 day rolling change continues to rise, and home values in general, are rising at half a per cent per month (as recorded in March and April). CoreLogic believes we could see home values end the year around 4.1 per cent higher. Sydney leads the current recovery trend, up 1.8 per cent in May 2023.
Final thoughts
The NSW stamp duty threshold changes for first home buyers will keep this sector of the economy busy going into the second half of 2023. There’s a real risk, with higher wages, the price of goods and services staying high, and a tight labor market, that rates could continue to rise this year so this sector (first home buyers) could be most vulnerable. It’s great to now see our banks look to help people who are already feeling the pinch, with these new lending standards for refinances. Now that cash backs are ceasing, and some lenders are increasing rates out of cycle, it’s important to ensure you're on top of your current lending solution or your mortgage broking team is.
It’s important to ensure your lending solution is in your best interests to tackle this challenging period and that each loan application is with the lender who’s conditions meet your specific requirements. We've worked very hard to create long-lasting, fostered relationships with all the 30 plus lenders on our panel, to ensure all our borrowers here at Black & White Finance are on the best terms available. Our finance strategies now more so than ever, need to be smart and in our best interests, to tackle this inflationary economic landscape.
If you want to know more about the different rates, terms, or bank specials on offer at the moment or just have a general question, please send a note to peter@blackandwhitefinance.com.au or click the start today button a little lower. With the help of our amazing Mortgage Broker Sydney – Black and White Finance team, we will be able to support you.
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