New year, new home loan: A guide to refinancing in 2018

Health, friendship and happiness – we assess almost every aspect of our lives in the new year, so why not re-evaluate the loans that are financing our homes?

It’s easy to adopt a set and forget policy when it comes to your finances, but it could be that your home loan is lacking relevance to your current situation. A home loan is probably the biggest finance product you’re likely to purchase in your lifetime, so it makes absolute sense to check in every now and then to make sure it works for you – and what better time than in the new year?

Here’s why a home loan health check could be just what the doctor ordered for 2018.

Forest Lodge home

There’s no point giving more money than you need to your bank. Picture:

Interest rates are low, for now

REA Chief Economist Nerida Conisbee says searching for a lower interest rate makes sense at any time: the lower your interest rates, the lower the repayments will be. You could knock years off your loan, not to mention saving thousands in interest.

With interest rates “unlikely to rise anytime soon”, it is an especially opportune time to refinance.

“Even though the RBA is unlikely to increase the cash rate any time soon, mortgage rates continue to rise, driven by a lot of other factors including rising wholesale costs and regulators urging banks not to lend too much,” Conisbee says.

Forest Lodge home

What special home loan features could be worth looking into before there is a rate rise? Picture:

Loans with special features, such as flexible repayments, will help you to pay off your loan faster in a low interest rate environment. So if your home loan doesn’t currently offer this, it could be worth looking into.

“Depending on the loan agreement with your lender, while rates are low, it might be worthwhile paying off a little more of your mortgage than necessary as this is likely the best it will be for quite some time,” Conisbee adds.

“For those on interest only loans, and nearing the end of their interest-only period, it’s an especially good time to shop around.”

The economy has reason to raise rates, eventually

While Conisbee says the banks are unlikely to raise interest rates anytime soon, it will likely happen at some time this year.

“China, the US and Japan are our three biggest trading partners so when their economic growth is strong, it increases demand for our goods and services,” Conisbee explains.

“While China’s economic outlook isn’t expected to be vastly different in 2018, it is the US that is really expected to see vastly different conditions over the next two years. The US economy is growing quickly and this is increasing demand for Australian exports. This will grow our economy and give more reason to raise rates in 2018.”

If you’re thinking of refinancing, it could be worth getting a jump on a deal before this happens.

Investors could find their silver lining

“A lot of banks are already moving interest rates up, particularly for investor loans,” says Conisbee.

“This might be due to a number of events that occurred last year. There have also been additional taxes on offshore investors in many states, as well as cuts to benefits off the plan buyers enjoyed such as stamp duty concessions. Even negative gearing wasn’t left alone, and while the changes thus far have been fairly moderate, bigger changes could be on the cards if a new government comes into power,” she says.

“And in some states, there’s just less supply and fewer apartments on the market,” she adds.

“There are likely to be far fewer investors in the market this year, so it would pay to shop around, given it would be more competitive for banks to find borrowers,” Conisbee says.



ACCC says mortgage competition ‘less than vigorous’

ACCC chairman Rod Sims: "We do not often see the big four banks vying to offer borrowers the lowest interest rates."
ACCC chairman Rod Sims: “We do not often see the big four banks vying to offer borrowers the lowest interest rates.” Sean Davey

National Australia Bank says it welcomes home loan customers calling to seek discounts to their current mortgage rates, after the competition regulator criticised the major banks for charging higher interest rates to existing customers as they try to lure new ones with big discounts that lack transparency.

NAB’s chief operating officer Antony Cahill said four out of every five customers are paying a rate below its current standard variable rate and that NAB had proactively contacted more than 300,000 customers over the past year to discuss potential discounts.

“This is indicative of a competitive market, and we continually review the setting of interest rates, our policies and products to ensure we provide the most suitable offering for our customers’ needs,” Mr Cahill said.

Banks’ insistence that mortgage markets are competitive contrasts with the view of the Australian Competition and Consumer Commission. In a 56-page interim report on pricing in the $1.6 trillion residential mortgage market, it described “less-than-vigorous price competition”. It said the pricing behaviour of each of the big four banks plus Macquarie “appears more consistent with ‘accommodating’ a shared interest in avoiding the disruption of mutually beneficial pricing outcomes, rather than consistently vying for market share by offering the lowest interest rates”.

The ACCC said that over the two years to June last year, existing borrowers on standard variable interest rate mortgages at the big four were paying up to 32 basis points more on average than new borrowers.

The average discount provided on variable rate loans over the same period was 78 to 139 basis points off the relevant headline interest rate.

“The discounting by the big banks lacks transparency and it’s almost impossible for customers to obtain accurate interest rate comparisons without investing a great deal of time and effort,” ACCC chairman Rod Sims said.

“But the potential savings from these discounts are immense.”

Treasurer responds

Treasurer Scott Morrison said “what the ACCC has found today is not unlike what is found for the big energy companies. Complexity is used against the customer. What we need is greater transparency, more competitive pressures, and more power to the customer, whether its of banks or big energy companies. I want banking customers to get the best deal.”

The government was moving to “make sure bank customers have all the power in the relationship” by introducing the open banking regime, comprehensive credit reporting and opening up the market for customer-owned banks, he added.

Westpac also pointed to open banking as a policy that would improve customer choice and hence the level of competition.

“With so much choice, it can be difficult for customers to meaningfully compare across the wide range of products and services on the market,” a spokesperson said, and Westpac “supported the open data regime in banking to help facilitate better customer outcomes”.

The ACCC’s investigation involved teams from the regulator scrutinising internal bank documents. The report highlighted references to “not wanting to ‘lead the market down’ and to have rates that are ‘mid-ranked’ and to ‘maintain orderly market conduct'”. At one bank in 2015, the ACCC said documents prepared by senior executives had “explicit references to ‘encouraging rational market conduct’, ‘maintaining orderly market conduct’ and maintaining ‘industry conduct'”.

The Productivity Commission also recently criticised the major banks for acting like an oligopoly and found price competition was lacking across the market.

The ACCC report, released on Thursday, also said average interest rates paid by borrowers for basic or ‘no frills’ loans are often higher than for standard loans at the same bank, and that bank communications about pricing provide an incomplete explanation of the drivers of changing rates.

Comparison site RateCity said customers who shopped around would get a better deal. The average variable mortgage interest rate for an owner occupier paying principal and interest is 4.31 per cent, while the lowest variable rate is 3.39 per cent, it says.

“The market doesn’t lack competition – it lacks competitive behaviour from the establishment,” said RateCity spokesperson Sally Tindall. “It also lacks a willingness from home owners to switch away from the big four. Customers of the big four banks need to understand that there are lenders lining up to offer you more competitive rates on your home loan.”

The ACCC report also said banks were very sensitive to adverse publicity around interest rate increases. Documents at one bank show staff recommending deferring any increase “until a ‘trigger event’ occurred (either an [cash rate] change or a rate change by a big four bank) due to concerns about adverse publicity,” the report says.

But it also criticises the quality of bank communications. When banks explain changes to headline interest rates, “those reasons are not always disclosed in the media releases or other public statements accompanying the rate changes,” the ACCC said. “Instead some public communications focus on one factor, or a subset of the factors, influencing the decision to change rates.”

Mr Sims said big banks don’t see smaller rivals as much of a threat. “Their behaviour is not affecting the big banks,” he said. “That was a surprise finding. They are not on the competitive radar of the big four banks, who see themselves as a market in and of themselves.”

The ACCC’s residential mortgage price inquiry came after a referral from Mr Morrison in last year’s budget. Mr Morrison also asked the ACCC to monitor whether banks would lift mortgage pricing to pass through the costs of the $6 billion bank levy, introduced in the same budget.

The ACCC said the four major banks and Macquarie stated that “no specific decisions have been made” to adjust residential mortgage prices in response to the levy.

A final report will be issued after June 30.


Could Australia be mirroring Norway’s house price reversion?

Norway’s house prices are losing ground like Australia’s, adding to concerns that economic growth will be thrown off track and that banking regulators have gone too hard.

Both housing markets have started to reverse in recent months, after a period of rapid growth in house prices and mortgage debt.

Housing prices fell a seasonally adjusted 0.5 per cent in Norway, Real Estate Norway, Eiendomsverdi and said in a monthly report.

Nationwide they fell 2.1 per cent over the year through December, driven by a 6.2 per cent decline in Oslo.

By comparison, Australia’s long-running house price gains have started to trend the other way, with new data showing national dwelling price growth is falling.

CoreLogic’s December Home Value Index showed Sydney property values fell 0.9 per cent in December, leading a 0.3 per cent fall nationally in values.

Sydney fell 2.1 per cent in the quarter, with the national figure also down 0.3 per cent over the three months to December.

Again, like Australia, Norway’s property market started to cool following a tightening of lending standards at the start of 2017.

Australia’s APRA has twice intervened directly in lending markets to ration the amount of credit that property investors can have, with caps on investor loans.

The Norwegian government has now asked the Financial Supervisory Authority to advise on the impact of tighter lending rules and whether they should be extended past a June 30 expiration date.

“We believe there is still further downside to prices both nationally and in Oslo as the stock of unsold houses is still elevated,” said Halfdan Fenwick Grangard, a senior economist at Svenska Handelsbanken in Oslo.

“However, we do not share the view held by some that housing prices, in general, are in for a prolonged downturn. We expect housing prices to fall moderately over the next few quarters before levelling out.”

In a report published by the OECD last month, the group warned that Norway should prepare for a possible housing correction. The OECD also said in March last year that Australia’s vulnerability to a house price collapse morphing into a recession has sharpened because of ballooning household debt and the dominance of big banks.

The US-based credit agency Moody’s also said in a report that the Norwegian housing market appears to be the most “stretched” when comparing price levels to what they define as a market equilibrium among 20 advanced economies.

The central bank has so far appeared sanguine on the housing market, with Governor Oystein Olsen saying last month that he foresees a “soft landing”.

The bank signalled on December 14 that it could raise interest rates sooner than anticipated, indicating a first rate hike by the end of 2018.

with Sveinung Sleire and Jonas Cho Walsgard



Targeting the right infrastructure can help beat the house price blues

Investors and owner occupiers are looking to counter Australia’s weakening house price market by targeting infrastructure hot spots that can turbo-charge capital growth.

And there are plenty of savvy buyers making the most of the strategy.

First home buyers Jack Barclay and Madeleine Hodge have just gone through the process of selecting a home based on infrastructure led growth when they were gearing up to buy in Melbourne’s inner western suburb of Sunshine.

“On auction day we had to choose between a property 15 minutes from the station and one eight minutes from the station,” says Barclay, a 27-year-old engineer. “The property further away was in better condition, was on a bigger block – and sold for less. But we were hell-bent on getting this one close to the station, even though we paid 70, 80 grand more just to be ten minutes closer to the station.”

Route of the Melbourne Metro Tunnel which connects to the Sunshine station line.

Route of the Melbourne Metro Tunnel which connects to the Sunshine station line. a

The couple paid $705,000 for the fixer-upper, a two-bedroom weatherboard house little changed since the 1970s. It was the best house they could afford in an area with good access to their jobs in the CBD 13km away.

“That was one of the biggest drawcards for Sunshine – that it’s got a really good train station,” says Hodge, a graduate architect. “There’s definitely [cheaper] areas like Altona North or other areas, but they don’t have the train line that Sunshine has.”

Having purchased their first home, the couple is now set to benefit. It’s an affordable hotspot, according to real estate agency PRDnationwide. Road, bike lane, commercial and residential investments worth $19 million slated for commencement in Sunshine during the final six months of 2017 alone were part of a wider slew of projects likely to push values higher in coming years, PRDnationwide figures show. The $6 billion Metro tunnel project due for completion in 2026 will put Sunshine on a straight high-frequency line to Melbourne’s CBD, Melbourne University, RMIT and St Kilda road.

It’s a pattern being repeated across Australia’s eastern seaboard. It is a variant on “location,location,location” but where the issue is not so much a nice view as proximity to public transport or employment centres like a new hospital or university. Infrastructure spending on publicly owned land worth $2.7 billion across greater Melbourne in 2016 increased to $6.9 billion in 2017 and current planned spending between 2018 and 2022 will be a further $9.6 billion, PRDnationwide says.

The Grattan Institute in a recent study “What price value capture?” says new infrastructure usually boosts residential property prices but the size of impact varies can vary dramatically. New heavy rail which opens up a whole area has a big impact but other forms of transport such as rapid transit bus lanes or light rail may be less significant because they make only a marginal difference to accessibility. Freeways are good for industrial property but can be a turn-off for residential.

Sydney's two-stage metro train line is already boosting property prices nearby.

Sydney’s two-stage metro train line is already boosting property prices nearby.

A study by LUTI Consulting found the Chatswood to Epping rail line completed in 2009 in Sydney’s north boosted the price of houses within 400 metres of the stations by 48 percent whereas for the new Dulwich Hill light rail line in Sydney’s inner west the increase was only 7 to 23 percent. The Perth Mandurah rail line opened in 2007 was found to have boosted property values by 28 to 40 percent. Grattan argued that while the Dulwich Hill light rail may have been a good way of easing pressure on the  transport system but its impact on property prices was small because the area was already fairly well served by other transport options.

The other tricky finding in the Grattan report was that it is hard to predict how long it will take for property prices to rise with new infrastructure. Epping prices sky rocketed after the train line opened while in Mandurah price rises occurred while it was still under construction. Prices are already surging in north west Sydney even though the new North West metro won’t open until 2019. A top floor level-19 212sq m penthouse apartment near the new Bella Vista station recently sold for a record $3.1 million even though it is 40 kilometres from the Sydney CBD.

Asti Mardiasmo, PRDnationwide’s national research manager buying property based on infrastructure is a long run game,” Mardiasmo says. “Fixing the highway or building a hospital doesn’t happen overnight.” But once that infrastructure is established and draws others into the area, demand for property will increase, pushing up values, she says. “It’s like a multiplier effect that will suddenly lead the turbo charged capital growth,” she says.

The wave of private gain coming from public spend could reignite the debate about capital gains tax deductions – which the opposition Labor Party campaigned to abolish in the last federal election – or could even raise the question about taxes on value gains resulting from public spending or policy changes to change zoning rules.

Infrastructure matters because the real goal is 'to make money while you sleep,' says Kogarah investor Joe Konnaris.

Infrastructure matters because the real goal is ‘to make money while you sleep,’ says Kogarah investor Joe Konnaris. Daniel Munoz

“Most economists would agree that rents – an increase in value you haven’t done anything to create – are an appropriate thing to be taxed,” says economist Saul Eslake. “There is a valid argument for taxing some of those rents because they have arisen from public policy decisions.”

Grattan however argued it is so hard to adjust fairly to all the variables that determine price rises that governments should just rely on a broad-based land tax.


In Sydney, where property values fell 0.9 per cent in December, leading a 0.3 per cent fall nationally in valuesthe pattern of infrastructure led property investment is similar. Spending of $2.2 billion in 2016 rose to $3.6 billion in 2017 and including residential developments will jump to $32.6 billion, as projects including the Sydney Metro Rail project from Chatswood to Bansktown, Circular Quay redevelopment, WestConnex, the CBD light rail and Sydney Fish Market redevelopment pick up steam.

The F6 extension in Sydney could ease traffic around Kogarah.

The F6 extension in Sydney could ease traffic around Kogarah.

In NSW, where Treasurer Dominic Perrottet last month  trumpeted the state’s $80.1 billion infrastructure pipeline over the coming four years, investor Joe Konnaris is also betting on gains.

Two years ago, Konnaris bought an investment unit in a residential development on Belgrave Street, a commercial street with medical practices and offices. He paid in the “mid-600,000[s]” for the two-bedroom apartment with underground car parking. Since then it’s gained between 10 per cent and 15 per cent in value, he estimates.

The rental yield of 4.5 per cent he gets on the unit is “okay” but the the real goal is “to make money while you sleep,” says Konnaris, an accountant.

“For me the whole purpose hinges on capital gain,” he says. “While you’re working you don’t need revenue. As the value is increasing you’ve not getting taxed on that money until you actually sell.”

Konnaris, who started working in Kogarah in the late 1980s, has seen it develop. When he first opened his practice, the suburb was a poor backwater compared to bustling Hurstville next door.

“It was like a little village,” he says. “The corresponding suburb of Hurstville was a big growth area. There was a lot of development in terms of apartments and Kogarah was the backwater.”

But development in Kogarah is now also being turbocharged by an estimated $113 million-worth of projects due to start in the last six months of 2017 alone that include refurbishment of the St George Hospital cancer centre and redevelopment of the Kogarah RSL into a mixed-use commercial and residential site.

“The area still has a lot of development potential,” Konnaris says. “They’ve changed some of the height restrictions within the local council. There are a lot of sites being demolished and up for development.”

For an investor looking to build wealth, that is crucial, he says.

“The infrastructure is very, very important. Some people make the mistake of buying property based on the tax advantages, but unless that property increases in value you’re losing money.”

In Kogarah, the ongoing development of St George’s hospital, a $307-million expansion that will create a new 7-storey extension above the emergency department, will continue to bring workers – and demand for accommodation – into the area.

“The hospital’s always going to keep growing,” Konnaris says. “It’s not getting any smaller.” The biggest potential upside is the NSW government’s pledge to build a new freeway SouthConnex that will go directly from Kogarah to the airport. Details are supposed to be announced this year.


Infrastructure doesn’t just benefit the suburbs in which it is being built. In Brisbane, property values in the inner southeastern suburb of Hawthorne are getting a boost from developments in neighbouring – and pricier – suburbs of Balmoral, Morningside and Bulimba, where the $90-million redevelopment of part of the defence department’s Bulimba Barracks is taking place.

Last year Kimberley and Cameron Carr moved from Wellington Point, 22km southeast of Brisbane into a $1,010,000 four-bedroom house in Hawthorne, across the Brisbane River from the CBD.

While the couple with three small children moved closer to the city for lifestyle reasons, such as being able to jump in and out of the city by ferry – “With small children you’re not packing for the entire day, which is what we used to do,” Kimberley says – they’re happy to benefit from capital gains that come from being in an area with good infrastructure.

“We won’t complain about it,” she says. “Ideally everyone wants their own property price to go up, but that just means you pay more rates.”


What someone drives, wears, or earns won’t tell you anything about their wealth — and most people don’t ask the question that will

  • Your income or your expenses are not accurate indicators of how wealthy you are.
  • The best measure of wealth is how long you could survive if you lost your job.
  • Your expenses, nest egg, and assets are the best indicators of how long you could survive without a job — and how much wealth you have.

Have you ever asked yourself the question, “Am I wealthy?”

If you’re living paycheck to paycheck and have tens of thousands of dollars in debt, then the answer is pretty simple. No, you’re not wealthy.

But, if you’ve been reading this blog for a few years, have gotten yourself out of debt, and actually have a nice buffer of cash, well maybe you’re finally one of the wealthy ones, but how can you know for sure?

How to know if you’re wealthy

Woman in Expensive Sports CarFlickr / Thanée Greif

If you watch too much TV or get a little too caught up in the lives of the rich and famous, you might think that wealth has to do with:

  • What you drive
  • What you wear
  • Where you live

At this point, I think we pretty much all know that flashy cars and monster houses mean nothing about your actual wealth. Heck, you could drive a $40,000 BMW and live in a $500,000 home, but if you’re $600,000 in debt, then you’re actually worth less than a 7-year-old child! And you know what? You’re definitely not wealthy!

What you drive, what you wear, and where you live has absolutely nothing to do with your wealth.

So what does?

The next delusion — your paycheck

I bet I know your next guess. About 70% of you out there probably think that wealth has everything to do with how much money you earn.

Also not true.

Doctors, lawyers, and corporate executives might earn a ton, but if they spend everything they earn — and many of them do, just to keep up with the Joneses — then they still aren’t anywhere close to wealthy.

Having a monster income can certainly help improve wealth, but it’s not the deciding factor.

How to know if you’re wealthy — the one question

woman using bank ATMGetty/Kevork Djansezian

If I want to know if you’re wealthy, I’m not going to ask where you live or what you drive, and I won’t even ask about your job or your income.

All I have to do is ask this one simple question:

“If you lost your job tomorrow, how long could you survive?”

That’s it.

Oh and by the way, you can’t use your retirement savings or the sale of your house. I’m talking about true wealth here — which means I want to know how long you could survive without doing anything drastic!

What does the answer actually tell me about you?

1) Your expenses

If you can live for quite a long time without your regular income, this tells me that you spend less than you earn on a consistent basis. If — on the other hand — your time-frame is quite short, you likely have debt and would quickly get behind on your bills in the event of a job loss.

2) Your nest egg

Can you survive for quite some time without that consistent paycheck hitting your bank account? That’s probably because you’ve set aside a healthy emergency fund — one that you can pull from in the event of an emergency such as this. Well done. If not, it’s probably because you tend to save very little for that inevitable rainy day. Sure, there’s no rain in sight, but even in the desert it pours from time to time.

3) Your assets

For some of you, your answer to my simple question is, “Forever.” But how could that be? How is it that some people could survive for decades without their main source of income?

The answer: assets — income producing assets to be exact.

When you own shares of stock, rental properties, or maybe even a flourishing side-business, even though you lost your day job, your other sources of income don’t stop. And with that income, you could just keep on living like nothing ever happened.  Now that’s what I call wealthy.



2018: the year getting a mortgage will become harder

National housing prices are officially in decline. There are a couple of issues those in the market for a house and those with a mortgage should be looking at in 2018.

The first is, what is the increasing difficulty buyers will have in securing a loan for residential property?  The other is, will there be growing pressure to pay down the mortgage while interest rates are still low?

There will undoubtedly be ramifications for the broader economy if too much household income is being funnelled into reducing debt and taken away from general spending.

The punt for 2018 will be predicting how far house prices will fall.

Based on the expectations of most economists, mortgage holders have between nine and 18 months of the current record low interest rates before the Reserve Bank will begin the process of moving them up towards more long-term historical norms.

Spurred by the growth in house prices, household debt held by Australians has more than doubled in the past 12 years. A recent report from the Australian Bureau of Statistics said almost 30 per cent of households fell into the class of “over-indebted”.

Numerous analysts have described the levels of mortgage stress as significant in various pockets across the country, particularly in mining communities in Western Australia and Queensland.

The financial regulator, the Australian Prudential Regulation Authority, has already moved to curb the growth in investor loans and interest-only loans – thus pushing bank lenders to give more favourable interest rates to owner-occupier and interest and principal borrowers.

Therefore, 2018 should see more of a focus on measures to ensure over-extended households pay down loans.

It was the move by regulators that put a cap on the growth rates in property. APRA engaged in the first of its macro-prudential moves in 2015, but the impact was offset when the RBA twice dropped interest rates.

Last year’s second attempt by APRA  was far more successful at putting the brakes on house price gains and (over the past month) putting them into reverse.

Corelogic’s Tim Lawless takes the view that in 2018 “we are likely to see lower to negative growth rates across previously strong markets, more cautious buyers and ongoing regulator vigilance of credit standards and investor activity”.

This time around, the Reserve Bank is not likely to repeat previous mistakes and lower interest rates.

The declines in national housing prices should now be sustained.

Figures released in late December by the Reserve Bank showed housing credit grew by only 0.4 per cent in November – the slowest in 20 months. This took the annual rate of housing credit growth to 6.4 per cent. Not surprisingly, growth in investor loans slowed proportionately more than loans to owner-occupiers.

Lawless points out that when the cycle moves down from peak to trough, so does the level of transactions. This will put pressure on credit growth.

Already, we have seen a fall in clearance rates as seller expectations have not adjusted to what is now a fall in prices.

Meanwhile, and not surprisingly, Sydney has been the main culprit in pushing down the national value of the residential property market. Its prices were the hottest among the capital cities and had the largest portion of investors.

It has taken a few months but Melbourne has now joined its northern neighbour. Thus, the new game for pundits is guessing how far and how fast house prices will fall.

On the more conservative side some economists predict Sydney house prices will fall by about 5 per cent in 2018 (they have already dropped by more than 2 per cent over the past three months).

At the other end of the spectrum there are those anticipating it could fall by more than 10 per cent – an outcome which could represent a bursting of the property bubble rather than a managed deflation.

The most important factor in maintaining a gradual easing in prices will be continued low unemployment.

The other swing factor will be what happens to interest rates. Despite some projections from economists that the RBA will move rates up mid to late 2018, the central bank will be keeping a very close eye on the housing market and will be loathed to become accountable for any precipitous fall in house prices.

Low wages growth and inflation and very weak consumer spending will provide it with the conditions to retain interest rates at 1.5 per cent.

Interest rates are more likely to go nowhere this year.


For most, predicted downturn will be little more than a blip

Sydney property prices are tipped to fall as much as 10 per cent over the next 12 to 18 months by some of the country’s leading property data providers and researchers.

Double-digit price falls may sound concerning to home owners who have only ever known rising values, but even this “worst-case scenario” is not a crash.

The Sydney market peaked in August, when the median dwelling price hit $909,914, according to CoreLogic. It has since come off 2.2 per cent.

From a current median price of $895,342, a 10 per cent decline would equate to about $90,000.

From a current median price of $895,342, a 10 per cent decline would equate to about $90,000.

This should not concern the majority of home owners.

Prices would still be above $800,000 – a threshold broken only in October 2016 after four years of booming real estate prices.


To bring prices back to where they were before the boom – $520,000 in late 2012 – the fall would need to be closer to 42 per cent.

While a decline in price is always welcome to those struggling to enter into the market, first-home buyers were finding it tough even back then.

In early 2016, first-home buyers were already at their lowest levels in more than a decade as a result of the median dwelling price nudging $800,000. Hardly a picture of affordability.

For most home owners, who have held their home on average for about 10 years, it’s unlikely a downturn of the size predicted will register as anything other than a blip.

Typically, property prices have been known to double in Australia every seven to 10 years in capital cities after a strong market cycle. So home owners who stay put for lengthy periods should  see their property value increase in the long run, irrespective of short-term hiccups.

In the latest quarter, prices have already pulled back 2.1 per cent. For perspective, at the height of the boom, Sydney’s property price growth once totalled more than 17 per cent in a year.

The home owners with the most to lose if these forecasts come to pass are those who bought in the last half of 2017, whose property values have fallen ever since, based on the CoreLogic data.

If they bought in with a small deposit, it’s easy to see how they’d feel the pinch.

Thankfully, CoreLogic’s predictions for Sydney’s labour market are rosier, meaning those who are faced with negative equity – where the property is worth less than the mortgage – should still be able to batten down the hatches and afford their repayments. If this changes, then there is much more to be concerned about.


Jobs and housing remain a worry for RBA

The Australian dollar surged to a two-year high after the Reserve Bank delivered an optimistic assessment of infrastructure investment, government spending and household consumption on Tuesday.

But concerns about consumers battling with rising electricity prices, underemployment and torpid wage growth were highlighted by the board in the minutes of its July meeting as some of the reasons for leaving the cash rate at the record low of 1.5 per cent.

While displaying a reluctance to follow the US Federal Reserve and the Bank of Canada in raising the cash rate, the board’s minutes showed the strongest sign yet that the next rate move will be up.

The board said a “neutral” cash rate of 3.5 per cent would be the point at which stable inflation and economic expansion were likely to meet.

The Australian dollar hit its highest point since May 2015 at US79.04¢ following the release.

On housing, the board said conditions in Melbourne and Sydney, where prices have risen by 14 per cent and 12 per cent over the past year, had softened recently, while house prices in Perth and apartment prices in Brisbane had fallen further.

In what could be seen as a warning on a future housing downturn, the board noted “several periods in the preceding decade in which housing prices had fallen, or growth had slowed significantly, in different parts of the country”.

Members said it was too early to tell if the crackdown on home investor lending by banking regulator, the Australian Prudential Regulation Authority, had had their full effect. The regulator launched a string of tough new measures in April designed to slow house price growth and help address the risks associated with rising levels of indebtedness.

On wages, the board offered up some optimism for workers by noting the Fair Work Commission’s 3.3 per cent increase in award wages.

“[This] was likely to affect the wages of around two-fifths of workers,” the board said after adding the unemployment rate had declined by 0.3 percentage points over the previous two months, to its lowest rate since early 2013.

The board noted that wholesale electricity prices had risen sharply over the first half of 2017 and that this had led to significant increases in prices for customers, highlighting “efforts to address climate change, policy uncertainty and its impact on the investment decisions” as contributing factors.

In June, EnergyAustralia announced it would increase electricity prices in Sydney by 19.6 per cent – or $320 a year – from July 1.

We would need to see an upgrade to wage and inflation forecasts to put rate hikes on the table any sooner than 2018.

Commonwealth Bank economist Kristina Clifton

Globally, the RBA remained positive, highlighting the resilient Chinese demand for commodities and the temporary slowdown in the US economy in the March quarter, with consumption starting to pick up again.

Analysts remained sceptical of any rate hikes before next year.

“Today’s minutes seemed to have a more positive tone overall, with the RBA acknowledging recent strength in the labour market and the generally positive flow of data for the June quarter,” Commonwealth Bank economist Kristina Clifton said.

“[But] we would need to see an upgrade to wage and inflation forecasts to put rate hikes on the table any sooner than 2018.”

Capital Economics’ Paul Dales said the minutes of July’s meeting suggested the RBA was not itching to follow other central banks by raising interest rates in Australia.

“If we are right in thinking that rates won’t be raised until 2019, the Australian dollar may yet fall from $US0.78 to $US0.70,” he said.


Interest rate hikes: How an RBA increase would affect your mortgage repayment

The Reserve Bank kept rates on hold this month, but experts are increasingly pointing to rate hikes in the near future. For Australia’s indebted property owners this could mean paying hundreds of dollars more in repayments every month.

But now the market is at a tipping point. Experts are predicting significant interest rate hikes, and they have the potential to hit hard – particularly for speculative property owners who over-extended themselves during the boom.

Those who haven’t factored in rate rises to their household budget could see themselves in hot water, suddenly needing to find hundreds of dollars extra a month.

Ex-RBA board memberJohn Edwards recently predicted eight rises in the official cash rate in the next two years to bring the official cash rate to 3.5 per cent from the current 1.5 per cent.

Thankfully, most lenders currently assess borrowers against a minimum rate of 7.3 per cent – about 3 per cent higher than most applicants’ rates – to ensure they can afford a loan if rates moved, Mortgage Choice chief executive John Flavell said.

If you’re worried about a bubble the last thing you’re going to do is put up rates.Alan Oster, NAB

“While some borrowers may find themselves in ‘mortgage stress’ after a few rate increases, for others, rates would have to increase significantly before they start to feel uncomfortable,” he said.

Higher rates could see some borrowers required to pay hundreds of dollars more for their mortgage.Higher rates could see some borrowers required to pay hundreds of dollars more for their mortgage.

Their research found a third of Australians said they’d need to see rates jump by “at least 2 per cent” for a considerable impact to be felt.

For someone with a modest $300,000 loan, repayments could jump by $366 a month if rates moved from 4 per cent to 6 per cent.

On a much larger loan of $1 million repayments would be $1220 more expensive in the same scenario.

Property Investment Professionals Australia chairman Ben Kingsley warned that some borrowers may have only factored in interest rates peaking at 6 per cent, which would leave them at risk of mortgage stress.

“Given the current levels of household debt, I have no doubt in my mind that if the vast majority of borrowers were paying interest around the 7.25 per cent, we would have a significant uplift in mortgage stress, unless the economy was booming, unemployment was low and real wage growth was flowing through to households.”

The more likely scenario is a 1 per cent rise in interest rates, which would see an economic slowdown due to households spending less, he said.

“This would limit the RBA’s ability to lift rates higher from this point, again unless the broader economy is firing.”

He recommended borrowers put extra savings into an offset account or into their mortgage while rates were low. This would provide a “buffer” for unexpected events – preferably enough to cover six months of repayments.

Borrowers could also consider fixing all, or part, of their loan, but this would restrict the amount extra that can be repaid and break costs could be expensive, he said.

Dream Financial senior advisor Paul Bevan warned that anything higher than a 7.25 per cent rate for mortgage repayments would cause “concerns” for borrowers.

A borrower with a $400,000 mortgage facing a rise from 4.25 per cent to 7.5 per cent would face an additional $10,000 a year in repayments.

“That’s almost $20,000 extra income they would need to earn to maintain there current standard of living and I’m not seeing many employers handing out $10,000 a year wage rises to their staff at the moment,” Mr Bevan said.

His clients are predominantly opting to fix half their loans.

Despite this, NAB chief economist Alan Oster was also not convinced the RBA would hike rates quickly enough to cause significant mortgage stress.

“The balance sheet is robust, 60 per cent of loans are variable, and [most are] 2.5 to 3 years in advance of where they need to be [in terms of repayments],” he said.

“If you’re worried about a bubble the last thing you’re going to do is put up rates,” he said.

Mortgage repayments are now actually lower than they were five years ago in most states. And fewer households are facing mortgage stress, Census data shows.

This is largely thanks to low interest rates.

If these rates increased they’d quickly appear much more expensive for households, a recent report from LF Economics shows.

“The standard mortgage payment formula shows nationwide debt repayments relative to household incomes are lower today than in 1990 and the smaller peak in 2008,” the report said.

In 1990, interest rates were around 17 per cent and borrowers used half their income to repay their mortgage in 1989, compared to 35.9 per cent in 2015.

But given the “current economic climate it’s more likely that mortgage stress would be caused by factors other than rising interest rates,” Joanna Pretty, general manager for non-bank lender State Custodians said.

“Rather, the most common causes are ‘life events’ such as unemployment, marriage separation or health issues.”

How to prepare for a rate hike

  1. Calculate how much extra each rate increase could cost you
  2. Consider fixing your loan, or part of it
  3. Make additional repayments ahead of time as a ‘buffer’
  4. Reduce your expenses where possible
  5. Speak to your bank, broker or financial planner


RBA keeps cash rate at 1.5pc

The Reserve Bank of Australia has kept the official cash rate steady for a 10th straight meeting and signalled it won’t be in any rush to join offshore banks in moving towards near-term interest rate hikes.

Board members left the overnight cash rate at 1.5 per cent, where it’s been since last August, as was forecast by markets.

In recent months, Australia’s big four banks, along with a number of smaller lending institutions, have regularly raised rates, particularly for interest-only borrowers, effectively tightening monetary policy despite the central bank’s caution. Household debt, new figures show, is at a record high.

Treasurer Scott Morrison said on Monday that he was confident this year’s APRA crackdown on interest-only loans to property investors would ensure a “safe landing” by encouraging households to reduce their overall debt levels.

The dollar fell sharply after the board’s statement was published after it dashed expectations among some traders that they would join the Bank of England and Bank of Canada’s recent shift towards a more hawkish stance.

Instead, the Reserve Bank produced a near carbon copy of the June statement, noting that consumption remains “subdued” because of low wages growth and high levels of household debt.

The bank also noted that global inflation rates have decline recently in response to falling oil prices, and that wage growth was subdued in “most countries, as does core inflation”.

On the more optimistic front, the Reserve Bank said that it expects the economy to “strengthen gradually” and repeated that a rising Australian dollar wouldn’t be helpfull.

The wait-and-see tone of the statement saw the exchange rate fall to US76.32¢ from US76.77¢.

In a repeat of the June statement, the Reserve Bank noted that the housing market varies around the country, but that the stronger markets are showing signs of easing.

“Growth in housing debt has outpaced the slow growth in household incomes,” it reiterated.

“The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.”