Misinformation and the long-term effects

AS THE Reserve Bank of Australia (RBA) lifted interest rates for an eighth month, the Sentinel-Times delved into how that it is affecting local business.

In the Economics Legislation Committee Speech on November 28, Senator Nick McKim asked Dr Philip Lowe, “Do you accept that you did in fact induce Australians to take out mortgages on the basis that interest rates wouldn’t rise until 2024? And do you think you owe those people an apology?”

“I’m certainly sorry if people listened to what we said and then acted on what we’d said and now regret what they have done. That’s regrettable. I’m sorry that happened,” Dr Lowe stated.

“Ex post, the economy recovered much more quickly than anyone expected, and we’ve had to raise interest rates more quickly, and people who borrowed in those two years are now finding it much more difficult.

“Looking back, we would have chosen different language… people did not hear the caveats in what we said. My language was always caveated. I thought it was clear, from the central bank kind of perspective, but the community didn’t think it was clear. They thought it was clear that we weren’t raising rates till 2024. That’s a failure on our part.”

The statement comes after the RBA’s Monetary Policy Decision on November 2, 2021, by Philip Lowe stated ‘…The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”

With the RBA increasing the cash rate target by 25 basis points to 3.10 per cent, and Exchange Settlement balances by 25 basis points to 3.00 per cent last Tuesday (December 6) where does this leave families and individuals.

“(The interest rate increases) have had varying effects,” Alex Scott Real Estate Agent, Dan Huther said.

“We are dealing with a lot of mature buyers at this stage that either have a small mortgage or no mortgage, and retirees are obviously happy that interest rates are on the rise for their invested monies.

“We are also still getting Melbourne buyers coming in.

“October was quiet, but November was back to normal, and December is looking good.

“There is also pretty good interest in the lower end range properties too.”

A small property under $500,000 listed last week in Wonthaggi received multiple offers over the weekend, and looks to transition to under offer.

“There is still very good interest from first home buyers, retirees and even single parents.

“The ones that have been hardest hit are the brand new four bedroom, two living area, double lock up garages, particularly in North Wonthaggi in the new estates. They are the properties where I imagine the interest rates would affect people the most – in the $600,000 to $700,000 range. Slower sales could quite possibly directly relate to interest rate rises.

“With the larger properties $900,000 plus, people are pretty well established, so they do not seem to be overly affected.

“And there has only been a scattering of mortgagee type sales around the region.”

Whilst individuals and families’ circumstances are all unique and require individual financial guidance, Dan did highlight that you only lose money on a property if you sell it, if you are in that position.

“If you can afford to stay, stay the line and stay where you are, and make the payments – you will come out the other end once the correction is over.

“The other positive at the moment is if you did happen to lose your job, the possibility of picking up another job in a short period of time is pretty good.

“Businesses are building and expanding – adjusting to suit the market, and interest rates are going up. When interest rates are going up and job markets are tough – that is when it starts to bite really hard.”

With the banks tightening requirements and valuations correcting particularly in the mid-range, the balance of interest rate increases has people evaluating their own mortgages.

“Many were not planning on rates increasing as quickly as they have, and as such we recommend individuals do not become complacent and check their home loan still works for them,” Sean Main of LS Finance Broking said.

“If you feel you are on a higher interest rate than you should be, pop in and have a chat, together we can explore your options. It is never too late to explore refinance options, and we recommend individuals look at their home loans every 12 months.”

With everyone’s situation unique, it is worth reaching out to a professional and in the case of LS Finance Broking there is no financial impact by sitting down and having a chat.

“We do not charge, and our aim is to give you the confidence as we guide you through the process, whether refinancing or purchasing.

“As home loan interest rates rise so too have assessment rates, which individuals should factor as their unique position during COVID is likely to vary to now.

“There are also a number of budgeting resources available online that allow individuals and families to keep track of their spending.

“Following our own collection of data on current clientele whilst there has been a slight decrease across the market on purchases, the re-financing sector has surged alongside interest rate rises.

“Refinances have increased over the last three months and are on par to purchases, however, the range of cliental for purchases continues to include everyone from first home buyers to investors.”

Licencing Credit Representative 495763 is authorised under the Australian Credit Licence 389328. 

Sean Main’s content provides general information only. The views and opinions expressed in this article are those of the author and do not necessarily reflect or represent the opinions of any other entity whatsoever with which I have been, am now or will be affiliated. Nor do they reflect the official policy or position of any agency, organization, employer or company.

We recommend that you seek independent financial and taxation advice before acting on any information in this newspaper. It contains general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.