Well, 2017 is now behind us. I know we say it every year – but boy has it gone by in a flash! I hope you have all enjoyed a successful 12 months, and begun the process of planning the year ahead around exciting adventures in both your professional and personal lives. In my first blog for the new year, I share my predictions for what 2018 will hold, and how you can best prepare yourself for the economic changes to come. Be alert, not alarmed!
Interest Rates to Rise
The official RBA cash rate has remained at its all-time-low of 1.5% for well over a year, and with no further board meetings scheduled until February, we’re enter 2018 with a sense of immediate certainty in relation to the national cash rate. That said, 2018 has been widely predicted by economists and media pundits to be the year of the rate rise. I firmly believe interest rates will rise somewhere between 0.25% and 0.5%, meaning monthly mortgage repayments will be on the rise for some mortgagees.
If the probability of a rate rise is enough to make you think twice about your weekly budget, take this opportunity to speak to a broker about securing a fixed rate. There are plenty of lenders offering rates between 3.69% and 4.16% on 2-5 year fixed terms – so in the face of an uncertain year, lock in a portion of your loan while you can.
Interest-Only Loans Will Become Less Popular
Throughout 2017, we have noted property owners increasingly switch from interest-only loans to principal + interest loans, saving themselves up to 1% on their rate. This is set to be a trend in 2018’s finance landscape, too. Not only does a P&I loan offer better rates (which are particularly attractive in the face of potential interest rate increases), it builds your equity in your property and improves your financial position. So many wins in one simple refinance.
Property Prices Cooling + FHBs Step Up
As investor participation in the hot Melbourne real estate market begins to slow, frantic purchasing from owner-occupiers has seemingly slowed. With less demand comes consistent sales results, giving younger generations much-needed confidence paired with a better chance to enter the market. Brokers are set to play an even more critical role in the purchasing process. As first home owners continue to take advantage of concessions – like the abolition of stamp duty on July 1 – brokers will spend more time coaching novice purchasers through the process. Despite common misconceptions about first home owners being locked out of the market, first home buyer activity is actually up 33% on this time last year, putting the ‘priced out’ theory to bed once and for all.
Less Moving, More Renos
As demand for real estate increases, so do property prices – which is great for vendors, and great for the Government. With rising prices comes higher stamp duty taxes, meaning deep-pocketed buyers are having to fork out tens of thousands on top of other moving costs. Exorbitant stamp duty fees have led would-be vendors to undertake renovations rather than moving, with development applications steeply rising throughout 2017. The stay-or-sell conundrum is a common one amongst upsizers and downsizers. While some homeowners may renovate to attain more spaces, others are developing their own subdivision, building two or more smaller homes on one large block. Subdivision grants these home owners access to the smaller home they desire, without the fierce market competition we’re observing at auctions across the state.
New Vacant Land Tax
A new 1% tax on the Capital Improved Value of vacant property in many suburbs throughout inner and middle Melbourne is also set to shake up the property investor outlook. With tenant-less landlords being penalised for sitting on vacant property in some of the city’s most in-demand suburbs, investor incentives may drop opening up availability in the rental market. With tenants regularly competing for properties ‘auction style’ across Melbourne, demand has placed pressure on the supply of affordable rentals. The introduction of the vacancy tax may force some investors to open their property to the rental or sales market, drip-feeding additional supply in all areas.
With these changes set to change the financial outlook for Australians in the coming year, there’s never been a better time to check in with an expert broker to make sure you’re in the best position. Reviewing your loan structures and rates can help mitigate risk across your assets, allowing you to seize opportunities and achieving your financial goals. If you’re a first home buyer, refinancer- or not-quite-sure-r, I welcome you to Hatch Financial Services in 2018 to discuss your property journey.