WEALTH HUB JOURNAL

Record Number of Borrowers Are Refinancing

More often than ever before, Australian property owners are finding lower interest rates by switching lenders, and they’re paying off their loans faster and reaping long-term financial benefits.

In 2021, Australians refinanced $181 billion in loans, and that trend has continued. In January of this year alone, homeowners refinanced $14.3 billion in home loans with new lenders, an 18.7 per cent rise year-on-year. And it was the ninth highest month for refinancing since the Australian Bureau of Statistics started tracking it in 2004.

This comes as interest rates are expected to rise to 1.35 per cent by the end of this year and climb to 1.85 per cent by the second quarter of next year, according to Paul Bloxham, HSBC chief economist.

Your bank is likely to match better fees of other banks if it means they don’t lose you to another bank. However, you likely won’t be able to switch lenders if your loan-to-value ratio is higher than 80 per cent.

If your current loan stipulates a steep penalty for breaking your fixed interest rate, you may want to reconsider making a jump. But if you can find a new lender with lower interest while making higher monthly repayments, you can achieve your financial goals sooner and save thousands of dollars over time.

Mother’s Day Downturn at the Auction Market

Mother’s Day weekend saw a significant slip after last week’s excitement at the auction market. A total of 2,039 properties were up for auction in the week ending 8 May, down from 1 May’s 2,742 homes. But this was still significantly higher than the previous week’s 1,819, according to CoreLogic.

A lot of the difference on 8 May was due to Melbourne’s whopping 1,271 auctions last week, nearly double the week ending 24 April (689). This week Melbourne had a respectable 895 with a 64.6 per cent clearance rate.

Adelaide had the highest clearance rate at 81.2 per cent based on 204 auctions, while Perth and Canberra both enjoyed a 75 per cent clearance rate based on 12 and 85 auctions respectively.

Sydney had 684 total auctions with a clearance rate of only 58.7 per cent, the lowest rate on Mainland Australia. Tasmania had a 50 per cent clearance rate based on four auctions.

This week last year, Sydney had a 78 per cent clearance rate based on 958 auctions.

Overall, the number of total properties under the hammer last week was comparable to the number this time last year, with 2,431 the week of 9 May 2021.

Rent Rising in the Inner City

As Australia opens to fully vaccinated travelers, inner-city rent is going up.

“Things are tightening rapidly, which means rents are likely to rise further as demand lifts and supply continues to reduce”, says Cameron Kusher of REA Group’s PropTrack.

The uplift in inner-city rent is due to domestic and international borders reopening, university students returning to classrooms, and workers going back to the office.

On a per listing basis, rental demand has sharply increased year-on-year.

“While the 37.1 per cent increase in rental demand over the year is undoubtedly strong, across the seven regions, the growth in demand ranges from 58 per cent in Melbourne-Inner South to 104.8 per cent in Melbourne-Inner”, Kusher says.

Across Australia, vacancies are at their lowest since 2006. The current vacancy rate is 1 per cent, down from 2 per cent at this time last year. The total number of vacancies is 36,868 nationwide.

With so few rental properties available, weekly rent not just in inner-city areas but also across the country is ticking upward. “We expect demand for inner-city rentals to continue to lift”, Kusher says.

However, Shane Oliver, chief economist for AMP, predicts residential property prices will fall 10-15 per cent by the end of 2023. This would take the average price back to roughly the same level as in April 2021, which should mitigate a spike in negative equity.

This may also alleviate some of the demand for rental property.

Rent Stress at Record High, Mortgage Stress Drops

While rent is going up in Australia, rent stress is at a record high. Research shows that for 67 per cent of renters, greater than 30 per cent of their household disposable income goes toward their weekly rent.

Likewise, 19 per cent of Australian renters are under extreme rental stress, as they report spending over 60 per cent of household income on rent. A year ago at this time, this figure was only 12 per cent due to lower rent and moratoriums preventing eviction.

Over the past six months, the amount of disposable income spent on rent increased by 2 per cent, bringing the burden per household to 42 per cent of their income.

Rent is rising faster than income and the cost of living is also generally climbing, increasing the burden on renters.

However, mortgage stress has shifted in the opposite direction, as only 35 per cent of Australians with mortgages pay greater than 30 per cent of their income on repayments. This is down from 42 per cent in June 2021 and 37 per cent this time last year.

New House Costs Spike Due to Labour, Material Costs

The cost of a new home in Australia has recorded its steepest climb since September 2000, following soaring labour and material costs. For an owner-occupier, costs spiked another 5.7 per cent in the first quarter of 2022, for an annual change of 13.7 per cent.

As a result, numerous home builders are taking a hit. Hutchinson Builders, one of Australia’s largest building firms, is responding to the worsening slump in construction work by slashing wages up to 15 per cent, limiting employee pay to four days per week (even though many work six), and making 200 employees redundant.

New dwelling approvals dropped 18.5 per cent in March, seasonally adjusted. This is following a 42 per cent increase the previous month.

However, many builders have a full backlog of projects and are assuring clients they will follow through, although some are raising prices for some clients. For example, Australia’s largest home builder, Metricon, announced in March its commitment to fulfilling fixed price contracts, but said it has been renegotiating contracts with a “small proportion” of its clients.

Timothy Hibbert, principal economist at BIS Oxford Electronics, told The Australian, “With the backlog of work continuing to escalate, cost pressures and delays are set to persist all the way through 2022 and 2023”.

However, he expects dwelling construction to continue at a historically elevated level further into this year. Hibbert predicts the HomeBuilder initiative, low interest rates, and pressure on the housing stock will work in favour of home construction.

Quote of the Week

“Things are tightening rapidly, which means rents are likely to rise further as demand lifts and supply continues to reduce.” — Cameron Kusher, REA Group’s PopTrack

If you’re interested in buying an investment property, contact Wealth Hub Australia for a consultation today! If approved, our network of financial experts will help you navigate every step of the process, so you can build wealth, become financially secure, and create a legacy.

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