Interest Rate Update - February 2023
Interest rates are on the steady incline with mortgage payments, groceries and general expenses on the rise. This is an uncertain environment for many and it can be hard to make sense of the current economy and how interest rates will affect your finances.
Michael has shared a summary of the impact of current interest rates and future predictions:
Written summary:
Current interest rates
RBA met this February and announced a quarter of a percent rise for the cash rate - currently at 3.35%. This means we are sitting at around 6-6.5% interest rates on our mortgages. Experts are forecasting another half a percent rise in early 2023.
RBA commentary is communicating that there is a lot more pain coming in terms of interest rate rises. Their goal is to dampen inflation, so they can reach 2-3% and to encourage scarcity in spending.
Forecasters are expecting a 4% cash rate by December this year.
The effect on property
Property market is already seeing this increase, with prospective buyers holding onto their money. Days on market are increasing, auction rates dropping, seller’s market is slow.
About a third of adults are mortgage holders, a third are renters and a third are self-funded property owners. Mortgage holders will struggle as well as those who have recently purchased property with the pinch on interest rates.
New home buyers - it’s important to keep your property and ride out this tough period. Hold on and get through this cycle. Australia always has an inherent love affair with property and the buyer’s will certainly be back.
Net migration is sitting at over 200,000 people so housing needs will certainly increase, particularly in Melbourne and Sydney.
China has announced that the degrees received in other countries won’t be accepted in China. More Chinese and Indian students will be coming out to Australia to study.
Rent will increase with interest rate rises and general market forces.
Job security and general spending
There is safety in our very low unemployment rate currently.
In the short term you may consider additional income streams such as working extra hours or discussing a pay rise with your employer.
Ways to reduce expenses during a tough time; shop around for energy and phone prices, shop around for fuel. Review your subscriptions you may have picked up during covid. Be more selective with your grocery shopping.
Look into refinancing your home loan with cash-backs on offer from many banks.
Coffee - it’s a big expense to have 2 cups of coffee out a day! This is a big saver we can all consider.
Looking forward, we may see another 0.5-0.75% rate throughout this calendar year. Have conversations with your bank about adding to the loan term and options to change your mortgage payments. Review your spending and find small ways to save during this current economic cycle.
