A FINANCIAL MOMENT

Property markets – what homeowners can expect in 2023

ALL Australians have had to adjust to increased cost of living, but it’s mortgage holders who’ve copped an additional - and for some, painful - financial hit.

Borrowers didn’t experience a single change to the cash rate in 2021, as it sat at its historic low 0.1 per cent. But in May last year, the Reserve Bank of Australia began a rapid hiking cycle in a bid to wrangle in out-of-control inflation.

Interest rates up, with more to come

Month after month, the increases kept coming. We ended 2022 with a cash rate of 3.1 per cent, which is the highest it’s been in a decade.

AMP chief economist Shane Oliver said the RBA’s actions have taken variable mortgage rates to their highest levels since 2012.

“In other words, roughly 10 years of falling mortgage rates have been reversed in eight months,” Mr Oliver said.

PropTrack executive manager of research Cameron Kusher said those aggressive increases have changed the landscape for a whole generation of borrowers.

“Interest rates for most of my career have been falling, and not necessarily falling particularly fast,” Mr Kusher said.

“I probably have to go all the way back to the Global Financial Crisis, so 2008, to when we saw a market change so much in such a short period of time and interest rates rise so rapidly.

“So, it has been a very different year for the housing market and it's making the environment tougher because a lot of people are experiencing higher rates and challenges meeting serviceability requirements.”

Mr Oliver said the rise in rates is now well above the 2.5 per cent interest rate serviceability test that applied for borrowers until October last year – and now equal to the 3 per cent that’s applied since.

“So many recent home borrowers will now be seeing rates above the levels their serviceability was tested at when they took out their loan,” he said.

Lenders are still required to apply a 3 per cent serviceability buffer on top of the current interest rate, so a buyer wanting to borrow on a 5 per cent interest rate would need to prove they could handle repayments if their interest rate shot to 8 per cent.

Borrowing capacity has fallen drastically as a result – by up to 30 per cent since April.

Mr Kusher said it might be time for the banking watchdog to revise the serviceability buffer as the cash rate approaches its forecasted peak.

Refinancing hits an alltime high

The significant increase in interest rates prompted more mortgage-holders than ever before to seek a better deal.

Data from the Australian Bureau of Statistics shows the value of owner-occupier refinancing hit an all-time high of $12.5 billion in August.

The latest data from October shows $12.18 billion in loans were refinanced.

Despite the softer October figure, Katherine Keenan, ABS finance and wealth spokesperson, said monthly owner-occupier refinancing between lenders has remained above $12 billion since June.

That’s much higher than pre-pandemic levels. "The RBA cash rate increased 225 basis points between June and October 2022, which coincided with a greater number of borrowers seeking loans with lower interest rates from competing lenders,” Ms Keenan said.

Opportunities for 2023

Unfortunately, interest rates are expected to keep increasing this year, just not at the rapid pace they did last year.

Fortunately, competition between the banks for business doesn’t appear to be going away and Mr Kusher believes there’s opportunity in that.

“I think the best piece of advice is you need to be prepared to shop around for a better mortgage deal, especially as interest rates are changing,” he said.

“And obviously, with property prices coming off, there may be some opportunities for people to purchase properties a lot cheaper than they were at the start of last year.”

Copyright 2023 Mortgage Choice Pty Limited (ABN 57 009 161 979, Australian Credit Licence 382869) and Smartline Operations Pty Limited (ABN 86 086 467 727 Australian Credit Licence 385325) are owned by REA Group Limited. Your broker will advise whether they are a credit representative of Mortgage Choice or Smartline

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Making the Work Bonus work for you

Hank Jongen General Manager, Services Australia

HI everyone.

The Federal Government has just introduced changes to Services Australia’s Work Bonus. The Work Bonus increases the amount an eligible pensioner can earn from work – either wages or eligible self-employment income – before it effects their pension.

The Work Bonus automatically exempts the first $300 per fortnight you earn from work if you receive Age Pension. Carer Payment and Disability Support Pension customers who are over Age Pension age and working may also benefit from the Work Bonus, subject to normal work rules for those payments.

Every fortnight you aren’t working, or have been paid less than $300 from work, you are contributing to your Work Bonus balance. This balance can grow until it reaches the maximum of $7,800.

From 1 December, the maximum Work Bonus balance has increased. The government has given it a $4,000 top-up, taking the total possible balance from $7,800 to $11,800. The top up will stay until 31 December 2023.

This means that pensioners over Age Pension age can earn an additional $4,000 in income from work without it having an impact on their rate of pension.

Any Work Bonus eligible income over $300 will reduce any Work Bonus balance you may have before the income starts to reduce your pension. The excess income won’t affect your pension rate until your Work Bonus balance is used up.

The $4,000 will be added to your existing Work Bonus balance. This means that if you start work you can have an additional $4,000 in Work Bonus eligible income before you see a change in your rate of pension.

If you’re already working and have used up all your Work Bonus balance, the additional $4,000 will mean that you may see an increase in your fortnightly pension from 1 December until you use up the $4,000 Work Bonus top-up.

The Work Bonus operates in addition to the pension income test-free area of $190 per fortnight for singles and $336 per fortnight combined for couples.

For more information on the Work Bonus and pension income test, check our website servicesaustralia.gov.au/ workbonus.

Until next time,

Hank Jongen

How to be master of your money in 2023

Damian Gibson, Partner and Financial Adviser, Elevate Wealth

THE start of a new year is always a good time to start thinking about your goals and habits for the year ahead, including your finances. Make 2023 the year you master your money and develop healthy financial habits that stay with you for life.

Here we’ll discuss some common sense (but effective) approaches to help you master your money in 2023 and beyond.

Cashflow

Cashflow is the lifeblood of anyone’s financial plan. It is important you get to know your money, understand exactly what is coming in, what is going out and where. If you are not overly disciplined when it comes to managing your cashflow, developing a budget is a holdfast way to understand and take control of your cashflow.

A budget will also help you to track your spending and cancel expensive services or subscriptions that are wasteful or unnecessary. Understanding your cashflow is the foundation of a good financial plan.

Start saving

Once your cashflow is under control you will be able to understand how much you can potentially save. Whether you are saving for your first home, an investment property, a car, a holiday or any other cost, developing a savings plan is a great way to keep you accountable and help you meet your target.

Setting up an automatic transfer into your savings account will eliminate the desire to spend unnecessarily. It is important to make sure the amount you are saving is realistic, achievable and sustainable. It is also important to have an emergency fund on top of your savings for unexpected expenses.

Investing surplus cash

If you are in the favourable position of having money left over after your expenses and savings, you might consider investing surplus cash into assets. Investing your money into assets such as shares, property or bonds can potentially reward you with financial growth and/or income over time. Returns from assets provide another means for funding things such as a holiday, children’s education or retirement.

When investing your money, it is important that the structure in which you hold your investments is aligned with your goals. Different structures have different trade-offs, for example Superannuation has preservation rules compared to nonsuperannuation structures. Having the correct structure is equally as important as the investment itself.

Review your debt

With interest rates at the highest rate since 2013 it is a good time to shop around or ask for a better rate on your home loan. Additionally, if you have a car loan or personal loan (which generally attract a higher interest rate compared to a mortgage) you might benefit from consolidating these loans into one.

Plan and set goals

No matter what stage of life you are in, developing a financial plan for the future could potentially be the difference between achieving your financial goals or not, whether that is an early retirement, being debt free, or paying less tax.

While we have only touched the surface here, the above strategies are a starting point for mastering your money. The world of personal finance can be confusing and daunting, talking to a professional Adviser at Elevate Wealth will help make sense of it all.

Any general advice in the publication has been prepared without taking into account your objectives, financial situation or needs. Before you act on any general advice in this publication, you should consider whether it is appropriate to your individual circumstances. Please seek personal advice prior to acting on this information.

Damian Gibson