The recent hike in interest rates by the Reserve Bank of Australia has affected not only homeowners but also potential buyers and renters, causing financial stress and uncertainty. This triple threat has impacted borrowing power, rental prices, and the number of properties available for sale, causing significant pressure on the housing market. In this article, we will explore how financial advisors from Vogue Advisory Group can assist Australians in managing their financial investments during this challenging period.
Background – Interest Rates
The hike in interest rates has made it challenging for potential homebuyers to secure a mortgage. The Australian Prudential Regulation Authority (APRA) has refused to lower its buffer, requiring banks to add 3% on top of the current interest rate when assessing mortgage applications.
This policy means that homebuyers will be assessed on their ability to pay interest rates of up to 9%. As a result, buyers’ maximum borrowing capacity has decreased by up to 30%, according to PropTrack. For instance, a couple who earned a combined gross income of $150,000 annually with no kids had the potential to borrow $994,000 in March 2022. However, this year they can only borrow approximately $800,000, almost $200,000 less than last year.
Interest rates and how financial advisors can help
Financial advisors can help clients navigate this situation by assessing their financial position, providing guidance on how to improve their credit score, and finding the right mortgage product that suits their financial goals and capabilities.
The reduction in borrowing power has led to a shortage of housing supply, which has pushed up property prices, making it even more difficult for first-home buyers to enter the market. The lack of affordable housing has further compounded the problem, particularly for the lower end of the market. According to Pexa’s latest Property Insights Report, the largest drop in settlement volumes in 2022 was for properties priced below $500,000, with the number of property settlements priced under $500,000 dropping by 34.8% in New South Wales, 7% in Victoria, and 12.8% in Queensland compared to 2021.
Financial advisors can provide clients with guidance on alternative investment options, such as real estate investment trusts (REITs), that provide exposure to the property market without the need for direct ownership.
Rental prices and interest rates
The surge in rental prices is another significant issue many Australians are facing. According to Finder’s head of consumer Graham Cooke, rental prices have yet to catch up with mortgage costs. As a result, renters are struggling to keep up with rent payments, with almost half of them saying they had difficulty paying their rent in February, according to Finder’s Consumer Sentiment Tracker.
Financial advisors can help renters save money by identifying alternative rental options, such as sharing accommodation with friends or family or moving to a more affordable location. They can also provide guidance on how to save money effectively to build a deposit for a property or alternative investment.
The current state of interest rates
The current situation highlights the importance of having a well-diversified investment portfolio. Financial advisors from Vogue Advisory Group can help clients balance their portfolio by investing in a range of assets such as stocks, bonds, and alternative investments. This approach can reduce the risk of exposure to a particular asset class, such as property or equities, and potentially provide a better return on investment.
Ultimate impact of current interest rates
In conclusion, the recent interest rate hike has created a challenging environment for Australians looking to enter the housing market, both as buyers or renters. However, with the right guidance and support from financial advisors, clients can navigate this challenging period and make informed investment decisions. Whether it’s finding the right mortgage product, alternative investment options, or identifying cost-saving strategies, financial advisors can help clients achieve their financial goals and aspirations.
The intention of the content of this article is to provide a general guide to the subject matter. You should seek specialist advice about your specific circumstances.
Vogue Advisory Group – How we can help you understand the impact of the RBA cash rate on your financial situation
Are you looking to understand how the recent 25 basis point increase in the cash rate announced by the Reserve Bank of Australia (RBA) will affect your financial situation? Vogue Advisory Group is here to help you.
Our team of skilled financial advisors can offer you the necessary guidance and support to comprehend the impact of the RBA cash rate on your finances. We can help you analyse your current financial situation, including your budget, savings, investments, and debts, and help you evaluate the potential impact of the RBA cash rate increase on your mortgage, savings, and investments.
We will work with you to create a personalised plan to manage any potential increases in mortgage repayments and suggest strategies to mitigate any negative impact on your savings and investments. Our financial advisors are committed to understanding your personal financial goals and circumstances and will help you to develop a tailored strategy that meets your needs and objectives.
At Vogue Advisory Group, we pride ourselves on providing clear and easy-to-understand advice that empowers you to make informed decisions about your finances.
If you want to comprehend the impact of the RBA cash rate on your financial situation, contact Vogue Advisory Group today. Our team of dedicated financial advisors is here to assist you in navigating this change and making informed decisions about your financial future.