Strong property market drives record home loan activity
Home loan activity reached a record high in December, according to the latest data from the Australian Bureau of Statistics, in a sign the property market remains strong. Australians committed to $32.8 billion of mortgages in December, which was 4.4% higher than the month before and 26.5% higher than the year before. Here’s a breakdown:
- Owner-occupied loans = $22.5 billion (up 5.3% monthly, 12.4% annually)
- Investor loans = $10.3 billion (up 2.4% monthly, 73.9% annually)
One reason so many Australians are entering the market is due to the boom over the past year. Another is that despite speculation that interest rates may increase later this year, rates are still at ultra-low levels and could still be relatively low after a rate rise.
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Govt updates first home buyer deposit scheme
First home buyers can now save their deposit even faster, after the First Home Super Saver Scheme savings threshold was increased from $30,000 to $50,000. The scheme lets first home buyers salary-sacrifice pre-tax income into a dedicated account within their superannuation fund – up to $15,000 per year and now up to $50,000 in total.
There are two ways in which the First Home Super Saver Scheme benefits first home buyers. First, the money they deposit into the scheme is taxed at 15% rather than the income tax rate, which is 19% for someone earning up to $45,000 and 32.5% for up to $120,000. Second, when first home buyers eventually withdraw their money, they’re allowed to withdraw their original deposit plus about 4.7% interest, which is a higher rate of interest than they’d earn through a regular savings account.
Withdrawals are generally taxed at the marginal tax rate minus 30 percentage points.
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Home building costs rise 7.3% year-on-year
Supply chain shortages that have affected so many industries have hit property as well, with residential construction costs rising at the fastest annual rate since 2005. Home building costs rose 7.3% in the 2021 calendar year, according to CoreLogic’s Cordell Construction Cost Index (CCCI). That said, the pace of growth might be trending down, with costs rising 3.8% in the September quarter but only 1.1% in the December quarter.
Part of the reason costs are rising is because builders are struggling to get their hands on materials such as timber and metal products. Property developers and home builders are likely to be passing on at least some of these increased costs to people buying homes.
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What you can do today to prepare for possible rate rises
The Reserve Bank has said it will increase the cash rate at some point. When that happens, banks will almost certainly raise their mortgage rates. So what can you do to prepare? Here are five tips:
- Calculate how much your repayments would increase if your home loan rose by anywhere from 0.25 percentage points to 1.50 percentage points
- Increase your savings to help prepare for a potential repayments increase
- Contact your lender today to ask for a rate reduction – if you threaten to switch to another lender, there’s a good chance they may agree to your request
- Think about refinancing to a lower cost lender
Let’s Chat if you want to discuss how a rate rise might affect your individual situation. Request a call back.
TAG Finance and Loans
Sal Cinque | CEO
03 9886 0800 | loans@tagfinancial.com.au
Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page. TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873 National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209.