With inflation smashing market expectations, economists are tipping a rate rise this year.
The latest Australia Bureau of Statistics data found that the consumer price index for the December quarter was up 3.5% over 12 months. This was above the Reserve Bank of Australia’s (RBA) 2 to 3% inflation target, which they forecasted for 2023 or 2024.
The RBA has stated that a rate rise would be unlikely before 2023, but economists are forecasting a move around the middle of the year.
Should the RBA increase the cash rate, lenders will typically respond by increasing the interest rates on their home loans
If you own a home or want to get onto the property ladder, a rate rise will have implications.
Homeowners with a variable home loan will see a rise in their repayments, which in turn will affect their household budgets.
Those on a fixed rate home loan may not feel the pinch right away. Their repayments will remain the same until their fixed period ends. But once the loan reverts to a variable rate, they may be shocked by the price increase.
For those looking to buy their first home, a rate rise will make borrowing money more expensive. It may mean buying in a more affordable suburb or opting for an apartment over a house.
The silver lining is that it may take some of the heat out of the property market, which has been mainly fuelled by low interest rates.
While news of a rate rise may come as a shock, it’s important to remember that they will remain at historic low levels for some time.
So, what can you do to prepare for future hikes?
If you’re paying off a home loan, get ahead on your repayments while rates are still low. Ask your lender for a better rate or switch to a different lender.
Consider locking in a fixed rate for a set period. This will give you peace of mind that your loan repayments will remain the same regardless of rate rises.
If you’re planning to buy a home, don’t be complacent but don’t be reckless either. If you’re in a healthy financial position, try to secure a home sooner rather than later. Consider your options, such as first home buyer grants and parental guarantors, to help you enter the market.
Whatever your home loan needs are, get in touch with us today. We will find the right loan for your needs and ensure that you’re well prepared for any future rate rises.