The result of May’s election saw Australia usher in a Labor government for the first time in almost a decade. It’s clear Labor has big plans to shake up current policies, and this will undoubtedly have a huge impact on the lives of everyday Aussies.
One area where we’re set to see a significant shift is the minimum wage, with Labor planning to increase it by 5.1%. While at first this might seem like a good thing, the additional pressure on business owners may lead to higher unemployment rates if the economy enters a recession. Higher unemployment would in-turn lead to higher inflation, and faster interest rate hikes.
So, what does this mean for homeowners and people seeking to buy a home sometime in the near future? The key is to be prepared, assess your financial position now and take critical steps so you’re not caught off guard down the track.
A professional investment property buyers agent can help buyers and investors understand how changing interest rates, lending conditions and property strategy may affect their next purchase.
Why Does Strategy Matter When Interest Rates Are Rising?
As I always say- it all comes down to strategy.
Here are five things I recommend all homeowners, or home buyers, do right now to be prepared for faster interest rate hikes under Labor:
1. Why Should Buyers Borrow Under Their Maximum Capacity?
Borrow under your maximum capacity: This one’s for all the first home buyers out there- always make sure you borrow under your maximum. This will ensure that you have a buffer, and when interest rates rise again — which they’re likely to sooner rather than later — you will still be able to comfortably afford the repayments. It’s important to ensure that you don’t end up in a position to be a distressed seller.
2. How Can an Offset Account Help With Higher Interest Rates?
Use an offset account: Although it may seem tempting to lock in a fixed rate on your home loan before rates go up even further, remember, you can never beat the banks at their own game, and they’ll always know more about upcoming interest rate hikes than you do. Getting a variable rate loan and using an offset account is a great way to significantly lower your interest repayments. You should put any savings or spare cash you have into the offset account, as your money will also be growing at whatever your current interest rate is set at.
3. Why Is a Cash Buffer Important for Homeowners and Investors?
Have a cash buffer: Further to my two points above, you should always ensure that you have some sort of cash buffer handy. Saving money is a good habit to get into, and you’ll be very glad you took steps to reduce your weekly or monthly spending when the interest rates go up and you need to increase your mortgage repayments.
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4. Should Investors Consider Buying in Regional Areas?
Consider buying in regional areas: This is a strategy I discuss in my new book, Buy Now. Instead of buying in a capital city like Sydney, Melbourne, or Brisbane, where you are more likely to take on a huge amount of debt and be in financial trouble when interest rates go up, consider purchasing a positively geared — or better yet, cash-flow positive — investment property in a regional area. Properties prices in regional areas are more stable, and don’t see the same booms and busts as the capital cities. The likelihood for a higher rental yield will mean that your mortgage repayments will always be covered.
A buyers agent for investment property can help investors compare regional and capital city opportunities to identify assets with stronger cash flow, lower debt exposure and better long-term suitability.
5. Should You Refinance Your Existing Loan?
Refinance your existing loan: Do you currently own a home, but aren’t happy with the interest rate your bank is providing? Why not switch it up and refinance your loan with a new bank. Banks generally tend to offer only new clients their best deals, as an incentive to draw new customers in. I recommend shopping around with a few different banks until you find the loan and interest rate that’s right for you- an experienced mortgage broker can help you with this.
How Can Buyers Prepare for Faster Rate Hikes?
If you’re still concerned about how faster rate hikes will affect you or your family’s finances, you should consider speaking with your accountant or a financial adviser regarding your specific circumstances, and what might be best in your scenario. I like the phrase “no one ever got ahead by waiting” and it’s true- the more actions you take to prepare now, the better off you’re likely to be down the track.
A property investment expert can help investors assess whether their finance structure, cash flow, borrowing capacity and purchase strategy are strong enough for a rising-rate environment. Working with an investment property buyers agent can also help buyers avoid overcommitting, choose suitable properties and build a strategy that can withstand future interest rate hikes.
If you are looking for a buyer’s agent to assist you with purchasing a home or investment property in the Sydney, Brisbane and Newcastle regions, as well as SA, TAS, ACT, VIC, NSW & QLD please get in touch with Lloyd Edge and his team at Aus Property Professionals here or give us a call on 1800 146 837!
