Welcome to this month’s Dominion Finance newsletter.
For the first time in twelve years the interest rates are increasing and because of this many of our clients will not have seen this before. Similar to when rates dropped, your lender will advise you what their increase will be and when it will become effective.
We have been working with many of our clients over the past months to ensure that they are on the most suitable interest rate and loan package with the increase in the interest rate in mind.
For most people the increase will be taken in their stride with the old adage, you spend what you earn. For others, and hopefully only a small minority of clients, they may have to come in and see us to work through their situation going forward.
According to the economists, this will not be a one-off increase to the cash rate. There is likely to be more to follow over the coming months and into next year.
There is always the negative talk in the media regarding the amount of money banks are willing to lend customers, and how some mortgagees will face tough times due to the size of the home loan that the bank has given them. While there will be people who will be impacted, there does need to be clarification here. The lenders do not assess loans for clients at the offered interest rates, for the very reason that if/when interest rates rise mortgagees may not be able to repay the loan. Contrary to media belief, banks do not want to be in the business of selling people’s homes, it is not a good business model for them. Therefore, lenders assess loans at an assessment rate of approximately 3% higher than the interest rate offered to the client, which builds in a buffer for the expected rate rise.
There is the flipside to the increase in interest rates and that is the impact on the property market. The boom of the last two years seems to be over, with property prices falling for the first time since the beginning of 2020.
With government incentives, this may allow more first home buyers into the market, while savvy investors will be looking around to add to their portfolio.
As we have said in previous Dominion Finance newsletters having a thorough understanding of your finances is so important to allow you to deal with the challenges that are always presented. Everyone should know how much money they earn, where it is spent, how much they can save, and ensuring that their superannuation is well managed to allow for a relaxed and enjoyable retirement. Your finances should not be a mystery to you.
At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 35 basis points.
The Board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic. The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.