The Reserve Bank has come out swinging against surging inflation, with industry players now watching for impacts from a larger-than-expected rise to the cash rate.
The Reserve Bank of Australia (RBA) has decided to increase the cash rate by 50 bps, from 0.35 per cent to 0.85 per cent.
The move marks the largest increase to the rate in 22 years, since the RBA raised by 50 bps in February 2000.
It has also followed on from the 25-bp increase in May, when the RBA lifted the rate for the first time in more than a decade, up from its historic low of 0.1 per cent.
While economists had been certain a rise was on the cards, most had assumed the RBA would either choose from a 25-bp or 40-bp increase, after the central bank deliberated between the two options in May.
Joondalup Homes stated that this is not the last of the rate rises and borrowers should prepare themselves for higher repayments. They also mentioned, that a free home review is your best option moving forward to ensure you protect yourself from increased cashflow burdens.
Inflation hits highest level in 22 years
Inflation has hit its highest level since the introduction of the GST, with the market to now eagerly watch for how the Reserve Bank manoeuvres the cash rate.
Many economists have forecast the first of a series of cash rate increases will take place in June.
Looking at one of the larger drivers for the inflation surge, new dwelling prices for purchases by owner-occupiers were up by 13.7 per cent during the year to March– the largest rise since September 2000, following the introduction of the GST.
Michelle Marquadt, head of prices statistics at the ABS explained newly built dwellings had been hit by “continued shortages of building supplies and labour, heightened freight costs and ongoing strong demand”. more...
Theses indicators are looking at interest rate rises that could be quite significant, time to call Joondalup Home Loans for an urgent review.
Redraw facilities and offset accounts have many similarities. But there are some important differences too.First up, make sure you read our articles on redraw and offset accounts if haven’t done so already. Now that you’ve done that, let’s unpack how and when to use an offset account or redraw facility.
The similaritiesAlright, let’s break this down. Both offset accounts and redraw facilities:
The differencesAn offset account is a separate deposit account. You can have your employer deposit your salary into it and you can transfer money in from other accounts. If you want, you can use your offset account for everyday spending like groceries and bills by using a debit card.
By contrast, a redraw facility is not a separate account but a feature attached to your loan. It allows you to draw back additional payments (the amount above your scheduled payments) you have made on the loan. A redraw facility may not be as flexible as an offset account. For example, you may not have the option to redraw money from an ATM or transact using a debit card. Some lenders may set minimum redraw amounts.
There may be different tax implications with using your redraw feature and offset account if you decide to rent out your home in the future. If you decide to rent out your home as an investment property, the interest charged on the loan may be tax deductible. But you may not be able to claim any portion of the loan you have redrawn from your redraw facility for non-investment purposes like a holiday or a private car.
On the other hand, withdrawing amounts from your offset account won’t affect the tax deductibility of interest charged on your loan. If there is a possibility that your first home could one day become an investment property, we suggest you seek financial advice on the best way to reduce interest on your loan with using a redraw or offset account.
Remember that everyone has their own spending and saving habits. What works for one person may not work for everyone. Here are a couple of scenarios that illustrate how offset and redraw accounts could work for different types of people.
Scenario One: Mike has renovation plansMike has just bought his first home – and it’s a renovator’s delight. He needs to save $12,000 to fix the place up and has chosen to do this by putting away $200 a month over five years. Rather than putting it in a savings account, he’d decided to reduce the amount of interest he pays on his home loan.
But here’s the thing: Mike doesn’t want the money to be easily accessible – otherwise he’ll be tempted to spend it. For this reason, he decides to put the money into his home loan as extra repayments. This means he pays an extra $200 above the minimum he’s required to repay each month.
By doing this, Mike is paying off more of the home loan principal, which means he’s reducing the amount of interest he pays over the course of the five years. If the need arises, he has the option to ‘redraw’ the $12,000 to pay for his planned renovations.
Scenario Two: April is a good money managerApril has always been good with her money. She always pays off her credit card on time every month to avoid paying interest.
Having just taken out a home loan, she is keen to make it work as hard as possible for her. So she decides to use the interest-free period on her credit card to maximise the value of her offset account.
She tells her employer to pay her salary into her offset account each fortnight. Meanwhile, she uses her credit card to pay for her daily living expenses. By paying it off each month, she avoids credit card interest charges.
By taking advantage of the interest-free period on her credit card, April can let her salary sit in her offset account for longer. In doing so, she reduces the amount of interest she pays on her home loan.
Both offset and redraw can work togetherMany people use both offset accounts and redraw facilities. For example, you might consider making an extra repayment into your home loan each month. Plus, you might choose to use an offset account as your transaction account where you salary is deposited.
Both your offset account and redraw facility may help to reduce the amount of interest you pay on your home loan. They could also help you pay it off earlier.
Weighing up the best way to manage your finances and home loan depends on a range of factors. Everyone’s circumstances are different.
It’s a good idea to talk to Joondalup Home Loans, your local Mortgage Broker about options for managing your loan repayments. We're your trusted Mortgage Brokers in Joondalup and all over Perth so we can advise on how to best manage your finances.
To sum up
APRA trusts switching the guidelines up how banks survey the affordability of home loans will cool rising family obligation levels.
The Australian Prudential Regulation Authority (APRA) has knocked up the usefulness support because of worries around by and large family obligations.
In a letter to lenders clarifying the move, APRA said that it presently expects approved store taking establishments to evaluate another borrower's capacity to meet their advance reimbursements at a financing cost that is basically 3.0 percent over the credit item rate.
This change addresses an increment on the 2.5 per cent cradle that was recently was set up.
They noticed that one out of five new advances endorsed in the June 2021 quarter were in excess of multiple times that of a normal borrower's pay and that controllers expected lodging credit development to outperform pay development in the months ahead.
APRA said that these conditions made the adjustment to the functionality cushion the most suitable system by which they could hope to intercede.
Depicting the move was a designated activity intended to build up the general solidness of Australia's monetary framework, Mr Bryne uncovered the move was upheld by the remainder of the Council of Financial Regulators and the Australian Competition and Consumer Commission.
For more information on loan affordability, call Joondalup Home Loans.
Conveyancing company PEXA has announced that last month was a new record month for refinancing in Australia.
August saw 300,000 refinancing deals completed in Australia, around 10% up year on year and surpassing the previous record, which was set after two rate cuts in June 2020.
95% of refinancing deals are struck using PEXA, giving it a unique ability to survey and assess the current state of the market.
PEXA publishes a Refinancing Index on a monthly basis, breaking down the figures on a state by state basis. Their index saw Queensland up 71.3 points year on year, with South Australia not far behind, up 70.6 on last August.
The ongoing lockdowns, which have given people time to think about their finances and the current low interest rate environments were cited as major contributing factors to the trend.
CBA breaks ranks, hikes fixed term rate
CBA have broken ranks with the bulk of the finance industry by becoming the first bank to raise interest rates since the price war began.
The Big Four bank upped their three-year fixed rate from 2.14% to 2.19% and their four-year fixed rate from 2.19% to 2.24%.
While these are relatively small changes on paper, they may represent a wider sea change in how rates are moving across the industry.
Banks are now beginning to hedge their bets on long-term interest rates, as we stand on the cusp of a new bond period beginning in the coming months.
Though the RBA is expected to keep the cash rate at minimum levels for the next three years, the increased price of bonds may see lenders up their rates independently of the Reserve.
When CBA lowered their two-year fixed rate back in March – the first time they had ever advertised a rate lower than the symbolic 2% threshold – they also upped their four-year rate, with a raft of other banks following their lead in the weeks that follow.
Now, as CBA makes the next step, it remains to be seen if other big name banks will go with them.
RBA sets first cash rate of 2021
The Reserve Bank of Australia (RBA) has announced its first cash rate decision of 2021.
Although expected, the RBA has held the low rate at its 0.1%, which has been the case for the last three months.
The RBA will be monitoring the economic data focused on unemployment, property prices and consumer spending. If these three areas all show a rebound, then there is likely to be an increase.
Don't get complacent about current rates, as they may just move without much notice. Record volumes of loans are being processed and Lenders just may slow things down by way of increasing rates slightly.
Joondalup Home Loans says, “It’s is financially critical to ensure you get a very competitive interest rate while you can.
Contact Joondalup Home Loans, an experienced mortgage broker to make sure you are getting or have got, the best deal.
According to Domain Perth's residential rental rates hit their highest in fives years. The house median rental rate increased 6.3 per cent in the past three months since December. The average rental amount has jumped to $420/w, whereas unit and apartment prices jumped to $350/w, a 2.9 per cent increase.
With demand under pinning the increase and pent up demand for accommodation driven by interstate migrants and returning WA citizens, it is anticipate these increases will continue for some time yet.
As a result we expect an influx of Investor's returning to the Perth residential investment sector pushing pricing up. Based on current data, we expect a run on Perth property over the next 2 years at a minimum.
If you have any questions regarding a home loan or wish to become a Property Investor, please call Joondalup Home Loans, Mortgage Broker Joondalup.