August CEO Message

How will interest rates change our lives in the next 18 months

Over the last 3-6 months we have been faced with challenges never seen before in recent decades. Inflation is well above 5%, unemployment is low, and we’re seeing increasing interest rates to curb this.

With recent RBA interest rate increases, our official cash rate is now 1.85% with many experts predicting that the official cash rate will increase to over 3% by early next year. This will mean that home-loan rates will move towards 5%, causing the average mortgage interest payments to have more than doubled over a 12-month period.

As interest rates increase, they start to impact:

• Property Prices

National property prices have taken their first dip in 3-4 years, following a national drop in house prices of 2% since the beginning of May, to $747,800 (a figure that includes houses and apartments).

• Lower buyer confidence and less money in the economy

Although we haven’t seen the immediate impacts just yet, the next 6-months will see a decrease of spending in the economy. This could result in increasing unemployment, and certainly will result in lower retail sales.

• Rising construction costs

With rising construction costs making it less economic to construct dwellings in combination with higher interest rates, there will be a slow down in the construction and housing market.

What are the opportunities that lie ahead?

Opportunities for first-home buyers and investors

n looking at the effects of interest rate increases, one of the key opportunities is purchasing houses at more affordable levels. If you’ve been looking to purchase your first property you may find vendors that are ready and willing to sell, making it more likely to obtain a reasonable price at purchase.

For investors, with interest and other outgoings being deductible, a lowering price point will mean that the costs incurred in owning an investment property will be able to be offset against other income. With the larger interest bill, this may result in larger tax returns at the end of the year.

For homeowners, the larger cash outlays, may result in some homeowners considering converting their principal place of residence into an investment property or renting out a portion of their home to sub-tenants (as we are seeing a relatively strong rental growth). If you are considering this, we covered the general Capital Gains Tax impacts in a recent webinar which you can find on our Facebook page.

Opportunities to expand your business

Timing in business is everything. The combination of an aging population, decreasing unemployment trends, and an increased labour supply due to immigration may bring opportunities to purchase businesses at a significant discount.

Reset your financial plan in the next 5 years

In Australia, we have an aging population. We are living longer, retiring, and less able to contribute into super. We advise our clients to start working on their financial plan as soon as they can.

With interest rate returns on fixed investments now significantly increasing, it may be time to re-calibrate with your financial planner to formulate a personalised financial plan and ensure that your balance with risk and return is appropriate to your individual needs and goals.

We’d love to be able to assist you with your goals this financial year. Please book in for an appointment and take advantage of these opportunities.

This material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.