Rates key to sector stability
Advice to buyers: ‘Be prepared and you’ll be OK’
A LEADING buyers’ agent says Gold Coast househunters should not be scared off by rising interest rates.
The Reserve Bank on Tuesday lifted its cash rate by 0.25 per cent – the first such rise since 2010.
However, Srama Group founder and former Titans player Matt Srama said people had little to fear so long as they budgeted properly.
“Sometimes it’s not as scary as people are thinking,” Mr Srama said.
“Sentiment and confidence are driven by what people read or hear. What I’m finding is when people hear all these things, that interest rates are rising, they actually haven’t done the numbers to work out, what does this look like if I were to buy a property, what does this look like in terms of worst-case scenario, what would this do for our spending per week?’
“… Me and a broker sat down and we did the numbers on a 30-year loan period at roughly a $1.1m purchase price,” Mr Srama said.
“A 50 basis point rise on a 30-year loan on a standard rate at the moment, for principal and interest, it worked out at (just) under $200 a month increase. That’s the cost of a meal out for a lot of people.
“… That’s the biggest tip I can give. Do the numbers on what an actual 25 to 50 basispoint rise does to your household income.”
The big four banks all anboss nounced they would pass on the interest rates rise, which will come into effect from May 20.
It is expected to add an extra $65 on to average monthly repayments. The RBA predicts rates will continue to climb until Christmas.
Ray White Surfers Paradise Andrew Bell said that while he did not welcome the rates rise, it was important for the stability of the Gold Coast property market.
“It will have a cooling effect on the real estate market and you will see the impact on overspending on everything from cars, boats and caravans wash over everything and slow it down,” he said.
“This is the market making sure it doesn’t implode and it is a very healthy thing for the long-term stability of the real estate market.
“There is no comparison at all between this and the global financial crisis and I have been through a number of those sort of events, including Black Monday in 1987,” Mr Bell said.
Mr Srama said the fallout from the rate rise could actually help buyers who had their finance in place, with less competition in the market.
“One of my favourite sayings is, ‘would you rather buy in competition, or in isolation?’.
“What I find is, when interest rates go up, when sentiment, confidence comes into it – and we’ve got an election coming up as well – what I find is a lot of buyers actually pull off and turn on the brakes, so to speak.
“… What I’m noticing is, due to the lack of buyer competition the ability to purchase a deal, so to speak, has never been better.”
Mr Srama said the shift in sentiment marked a significant change on the previous 18 months, in which many buyers were motivated by a “fear of missing out” (FOMO).
He said many of those buyers had overextended themselves and faced a challenging time.
“The people who over-leveraged in an upswing market, it’s going to be tough for them.
“(Some are) up to their eyeballs in debt. Because of the FOMO, they were like, ‘nah, let’s just get in’, and they didn’t do their buffers on any interest rate increases.
“You’ve got to remember, the last 12 months has been historic low interest rates. So you would have hoped people put the buffers in.
“And the ones who didn’t, and I think there will be a fair few because of the FOMO, they’re the ones who I feel may struggle in the next year or so.”
LABOR says the government is trying to “wash their hands” of the challenge posed by rising interest rates but Treasurer Josh Frydenberg said Australia was better placed than other countries.
The Reserve Bank of Australia defied predictions by raising the cash rate to 0.35 per cent on Tuesday in a move that will increase mortgage repayments. The big four banks all said they would pass on the increase to borrowers.
With inflation tipped to hit 6 per cent by the end of the year amid stagnant wage growth, cost of living is at the front of Australians’ minds ahead of the May 21 election.
But Mr Frydenberg said the rate rise and an unemployment rate of just 4 per cent were indicative of an economy going from “strength to strength”.
“It’s appropriate now for monetary policy to normalise as the main impacts of Covid start to subside and just as fiscal policy has started to normalise,” Mr Frydenberg said.
He denied claims that the cash handouts and fuel excise cut announced by the government during the budget to aid with cost of living had further added to inflationary pressures, instead putting the blame on global pressures.
“The main drivers of the higher inflation are global developments. That is both the war in Ukraine and the Covid pandemic which has disrupted supply chains, and it’s affecting the whole world, not just Australia,” he said.
“The Federal Reserve in the United States has lifted the cash rate by 25 points. In the UK … 65 basis points. In Canada by 75 basis points and in New Zealand, by 125 basis points.
“We’re very conscious of the cost-of-living pressures that Australians are under, and that’s why we’ve made the announcements in the budget.”
Labor’s Treasury spokesman Jim Chalmers said his party was the better economic manager and the Coalition didn’t understand the pressure people were under.
“We think the difference between Labor and the government is the government is trying to wash their hands of this challenge,” Mr Chalmers said. “They don’t understand the pressure that people are under, under Scott Morrison’s cost-of-living crisis, and we do.
“Growing the economy without adding to inflation, getting real wages moving again, trying to have something to show from this budget which is heaving with a trillion dollars in debt.”
Mr Frydenberg however said the cost-of-living pressures were a key reason to vote for the Coalition, saying the country needs “a steady hand at the helm”.
Prime Minister Scott Morrison meanwhile pledged a twoyear freeze of the pension deeming rate, which will ensure about 900,000 retirees and other welfare payment recipients won’t suffer a drop in their payments should the Coalition be re-elected.