Not wanting to sound like a ‘broken record’, but this issue and the impact on property prices will hang around for the next (12) months. According to recent industry reports, here is what the economists of the major banks are forecasting where the overnight cash rate (OCR) will be sitting over the next (6) to (8) months. It currently sits at 1.35%:-
· CBA: cash rate to rise by 0.50% in August and reach 2.60% by November this year
· Westpac: cash rate to rise by 0.50% in August and get to 2.60% by February 2023
· NAB: cash rate to rise by 0.50% in August and hit 2.60% by February 2023
· ANZ: cash rate to rise by 0.50% in August and reach 3.10% by February 2024
If CBA are correct that would be the fastest series of rate rises since 1994. Considering these rises we may see basic variable home loan rates sitting at 4.50% to 5% before Christmas?
The significance of the above, is that if you are on a variable home loan rate, you could see that variable rate double by the end of the year, placing significant mortgage stress on borrowers with large mortgages of say 500k plus. Any rate rise means an increase . Further to that, the importance of reviewing your home loan position now becomes more critical, because as interest rates increase, so does the assessment rates that lenders use to make sure borrowers are not being placed under financial stress. Remembering from prior articles, the stress buffer that lenders generally apply is 3% above the applicable rate applied to your loan. If you are moving to an interest rate of 4.60%, then lenders are assessing your borrowing capacity at 7.60%. That then in turn can leave many more borrowers sitting as ‘mortgage prisoners’ unable to move their loans because on paper they cannot prove the ability to service the debt at this much increased buffer position!
If you are in this position, a debt refinance may allow some initial budget relief. If this is you, then ACT NOW!
Contact Michael on 02 65832211 or email michael@compassadvice.com.au