Interest rate rises: What does it mean for housing affordability and the rising cost of living?

Lending & Mortgage Broking


Interest rate rises: What does it mean for housing affordability and the rising cost of living?

In a pre-election climate dominated by issues of housing affordability and the rising cost of living, the RBA have today raised interest rates by 0.35%. This is the highest rate rise since November 2010, and the first of a potential series of rate rises aimed at reducing inflation. The recent federal budget saw the announcement of key initiatives that revolved around delivering relief to help those heavily impacted by cost of living and further interest rate rises that are expected to be handed down over the coming year. More specifically, those looking to dive into the property market also materialised a win with the government announcing as part of its budget measures, an increase in the numbers of places available under its “Home Guarantee Scheme”.

The scheme is designed to allow first home buyers to purchase a property with a minimal deposit of 5% and an undertaking from the government guaranteeing the remaining 15% of the required deposit to avoid the inclusion of lenders mortgage insurance (LMI). This year’s budget initiative sees an increase to 35,000 places within the scheme, up from the previous year’s limited 10,000 places. However, the initiative has been tailored to reach a specific demographic of Australia’s population with not all First Home Buyers being eligible. The scheme will have a set income eligibility threshold and price caps on the maximum property purchase price. Ultimately places are limited with 35,000 spots available in the scheme and is not likely to have a dramatic impact on the broader market. On the flipside, this increased scheme is certainly a step in the right direction to assist first homeowners in securing their first property.

In addition to the Home Guarantee Scheme, the government announced its plans to further address housing affordability concerns by increasing the first home super saver scheme. This allows first homeowners to voluntarily contribute to superannuation up to $50,000 to put towards the deposit required for the purchase of a first home. The current contribution cap of $30,000 will increase to $50,000 as of the 1st of July 2022.

For many Australians, the increasing cost of living expense is being felt across many categories including petrol, food, rates, and school fees, which in turn is places pressure on mortgage repayments. Figures provided by Canstar indicate that if the cash rate in increased to 1.75% by March 2024, variable rates provided by lending institution would reach 4.64%. Assuming the rise comes into play, on a million-dollar facility this would equate to an extra $217 per week or $11,284 annually. Recent data provided to money magazine from Digital Finance Analytics show mortgage stress being the greatest leading factor in financial stress for young Australian families. Data indicates almost 75% of this demographic (approximately 240,00 households) were under mortgage stress prior to the recent rise in petrol prices in February 2022.  This year’s budget has targeted the first homeowner market and provides initial relief for the recent increase in cost of living however we are yet to see the full impacts of a rate rise.  Prior to May 2022, November 2010 saw the last interest rate rise in the market and has provided an environment of homeowners only feeling rate cuts for the past several years.

At Partners lending we provide lending advice based on strategy, cash flow and goals specific to our clients’ particular circumstances. This detailed understanding assists in providing advice to include consideration of potential impact of rates rises and cost of living. For more information on the above and to see how we can assist in navigating through the current lending environment with confidence, contact a lending advisor from Partners Wealth Group today on 1800 333 143.

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.