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  • Writer's pictureCOMPASS

Timber, Steel & Home Loans

What a combination !

I recently read an industry news article stating that the price of timber had risen by 380% over the last 12 months and from discussions with local shed manufactures they can confirm the cost of steel has also risen by at least 50% with another round of price rises due in September. Just looking at the cost of ‘timber’ rising in isolation, there are some key factors that are responsible:-

  • Bushfires that have depleted a great deal of available logging forests.

  • Lower availability of imported timber

  • A shortage of skilled labour brought about by a trickle in immigration to Australia

  • A large migration of city dwellers to regional areas, impacted more greatly by Covid

  • Housing demand outpacing supply

  • A low interest rate environment

  • Ability for people to work by remote access , linked to the city exodus , and the hesitancy to return ‘to the office’.

  • Government housing stimulus packages like first home grant , stamp duty exemptions , first home loan deposit scheme, which all assist the ‘demand’ side but not ‘supply’ of housing.

So this is like a ‘perfect storm’ in terms of pushing up construction costs , because now the cost of constructing that standard three to four bedroom home has suddenly gone from say $1500 per square metre to over $2000 per square metre . If people are borrowing money to build then that loan amount to build the same size property as planned, just when from say $350000 to $450000. The combined labour and material costs have to flow on to the consumer. So the important points to note for borrowers involved in building their residential home are:-

  1. Stay in close contact with your builder in regard to whether they can hold a fixed price contract for the customary (90) days ?

  2. Consider the home size and your budget closely.

  3. Make sure you have a construction loan approval in place & ready to go, subject to council / certifier approved plans, and fixed price contract (I’ve excluded owner build situations in this article)

Now to ‘throw the cat amongst the pidgeons’ so as to speak, there has been some discussion in the media about interest rates rising . We know that there has already been some upward movement on three to five year fixed rates and the central bank has made some comments about inflation re-emerging. At the end of the day if the cost of funds to commercial banks in Australia rises , then that has to be passed on to borrowers . Lenders are also considering the levels of debt relevant to income for home loans .Therefore it’s even more critical for home buyers to look at the points above in terms of current income levels and borrowing amounts.

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