After about ten years of falling interest rates, and a year in 2021 of no change at all to the cash rate, 2022 delivered a completely new landscape for borrowers.
The Reserve Bank started its cycle of rate rises in May. Month after month, the cash rate rose, and lenders passed it on. For many borrowers, these rate increases were the first they have ever experienced. We end the year with the cash rate at 3.1%, the highest it has been in a decade. For the first time in a very long time, borrowers with variable rates received month after month news that their repayments will be increasing.
Earlier on, it was recognised that that some borrowers had built up buffers in their home loan and were already paying more than the minimum loan repayment, so they had the ability to comfortably manage the higher interest rates. However, 8 consecutive rate rises add up. As the year progressed, household budgets started feeling the pressure. Some segments of borrowers are now seeing rates above the level used by banks to assess their home loan affordability when they took their loans out. Borrowers on fixed rates are yet to feel the impact. It is reported that two thirds of this group will reach the end of their fixed rate term by the end of next year and the jump in their home loan repayments will undoubtedly hurt.1
Rising inflation is the main factor behind 2022’s rapid rate rises. Determined to get inflation down to target levels, the Reserve Bank is increasing rates to see a pullback in spending with the aim of softening demand.
The Reserve Bank has made it clear that more rate rises are on the agenda for 2023.
No one knows exactly when and at what level rates will peak. It is currently being reported by economists that although rates are tipped to rise again in 2023, we won’t see the same series of rapid rises. Of course, forecasts by economists are subject to change.
Competition between lenders is strong
We have had great success in negotiating better rates with clients’ existing lenders.
Refinancing to a new lender is an option when the numbers genuinely stack up to provide genuine savings and home loan features that are right for the client. The right home loan structure and mix of loan features is very important in times of higher interest rates to help clients can manage their loan effectively.
The property market felt the impact
Not surprisingly, rising interest rates took their toll on consumer sentiment, affordability, and the property market. Core Logic reports that over the year to November, national housing values fell -3.2%. Capital city dwelling values fell -5.2%. Estimated annual sales declined -13.3%. (Results varied across regions, suburbs, and pockets.) The pace of decline started to slow toward the end of the year however given interest rates are expected to increase again in 2023, analysts report that the home values may see more downside.2
Guidance given to borrowers throughout 2022 remains relevant as we enter 2023:
- Check your home loan repayment amount and consider what it will be if rates continue to rise. CFS is here to help with this, and you can also use the home loan repayment calculators on our website www.courtfs.com.au
- Review your household spending and make necessary adjustments.
- Understand how to use your loan features such as offset accounts, fortnight repayment options to help manage your repayments. Talk to CFS about your loan features.
- Consider making more than the minimum repayment level now if you can afford it.
- Talk to us about a better deal if it has been a while since your rate was checked against the market.
- If you are on a fixed rate, talk to CFS about options to consider for when your fixed term expires.
- Talk to CFS about options if you are feeling financial pressure.
