Accurate Industry Update | February 2022

Here’s what’s making news in the property and finance industry:

  • Borrowers set home loans record
  • First home buyers get savings boost
  • Homebuilding costs rise 7.3%
  • How to prepare for rate rises

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. The breakdown was:

  • Owner-occupier 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 because it’s been booming over the past year.
Another is that despite speculation that interest rates might increase later this year, rates are at ultra-low levels and would still be very low even with a rate rise.

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.

The 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.

Homebuilding 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.

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 by how much your repayments would increase if your home loan rose by anywhere from 0.25 percentage points to 1.50 percentage points in the years ahead
  • Get ahead on your mortgage now, so less of your loan needs to be repaid if and when those rate rises occur
  • Increase your saving rate, so you’re covered if your monthly repayments increase
  • Contact your lender today to ask for a rate cut – if you threaten to switch to another lender, there’s a good chance your lender will agree to your request
  • Think about refinancing from a variable-rate loan to a fixed-rate loan

Want to know more? Have a chat with one of our award-winning mortgage and finance professionals here.
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