Yesterday afternoon the Reserve Bank of Australia decided to raise interest rates by another half a percentage, making the new cash rate 1.35 per cent. As the RBA continuously raises rates to try and curb inflation, the hikes are putting increasing financial pressure on everyday Aussies.
I’m a property expert with over 2 decades of experience buying and selling real estate. I have a personal property portfolio of 18 properties worth $15 million (combined), and I’ve put together my top 10 financial tips and strategies to help you cope with the rate hikes:
1. Cut back on expenses: If you can afford to, it’s essential to take a close look at your finances and see where you could be saving money instead. Every household should be aiming to save an additional $300 to $350 per week to lessen the risk of further interest rate rises.
2. Use an offset account: If you have a mortgage with a variable interest rate, put as much of your savings into your offset account as possible. This will reduce your monthly mortgage repayments, and the money in the offset account will be growing at the same rate as your mortgage interest rates. You can also use an offset account like a savings account, and take money out whenever you need to.
3. Speak to your tax accountant: With interest rates on the rise, it’s never been a better time to speak to your tax accountant. There may be several deductions you can make, and if you’re leaving money on the table you’re only disadvantaging yourself.
4. Speak to a mortgage broker: If you’re struggling to pay the interest on your home loan (or any investment properties) speak to a mortgage broker about potentially refinancing. A mortgage broker may be able to find you a better deal by switching to a different loan provider.
5. Invest in cashflow positive assets: If you have an investment property (or a portfolio of properties) that is highly negatively-geared, you may need to change your strategy (unless you’re a very high income earner and your salary can sustain the risk). Look to invest in cash- flow positive properties that will give you a cash buffer in case of further rate hikes.
6. Buy-under-market-value properties: With the property market currently in decline, it’s never been a better time as a buyer to get better value for your money. Buyer’s agents can help you source under-market-value properties through their contacts with local real estate agents in their areas of expertise, negotiations skills, and ability to uncover off-market gems.
Another way to find undervalued properties is to do your own research on what similar properties have recently sold for, and see if you can negotiate a better deal with the agent.
7. Research government initiatives: As a response to the housing affordability issue, governments (both state and federal) are creating new programs and schemes to help first home buyers get their foot on the property ladder. Such programs include Labor’s Help to Buy Scheme and the NSW Liberal’s Shared Equity Scheme. There’s also the NSW government’s plan to phase out stamp duty, which hopefully other states will follow. These programs are likely to make buying your first home far easier for many people, regardless of interest rates. If you think you might be eligible for a government scheme, do your research to see if it might be the right option for you.
The interest rate hike will be tough on many Aussie families. However, by taking the right steps to get your finances in order, you’ll be putting yourself in the best possible position moving forward. If you would like more information on how to take advantage of a declining property market and secure better value for your money, my new book Buy Now: The Ultimate Guide to Owing and Investing in Property, has practical tips and strategies that you can use to buy your first home, build up your property portfolio or buy your dream house.
About Lloyd Edge
Lloyd Edge, Director and Founder of Aus Property Professionals, is a buyer’s agent, property strategist, and author of best-selling book Positively Geared. His new book, Buy Now, is the ultimate guide to owning and investing in property. Lloyd was a finalist in the 2021 Real Estate Business Awards for Buyer’s Agent of the Year and Aus Property Professionals was awarded Property Strategist of the Year for 2022 by APAC, Australian Enterprise Awards.