Considering purchasing property or currently repaying a mortgage? You need to know how the latest Federal Budget for 2022-23 will impact you.
The Federal Government has released their 2022-23 Budget ahead of the next federal election, with home buyers coming out on top thanks to new schemes and increased placements. However, homeowners and would-be buyers may need to prepare themselves now for forecast interest rate hikes off the back of the federal budget 2022-23.
Let’s explore the key offers available to would-be buyers from Tuesday’s budget, and what could be in store for homeowners mortgage rates moving forward.
Home buyer schemes: more placements in budget 2022-23
Housing affordability is a serious concern for millions of would-be home buyers, particularly those looking to purchase in capitals like Sydney or Melbourne.
According to the new financial year’s budget documents, the Home Guarantee Scheme has already helped almost 60,000 Australians to achieve homeownership amidst record property prices. Moving forward, they are committed to an additional $8.6 million to expand the scheme.
Treasurer Josh Frydenberg has revealed that 50,000 new placements for buyer schemes will be made available for Australian home buyers in the budget.
The New Home Guarantee, previously called the First Home Loan Deposit Scheme, will be expanded, with a further 35,000 placements available from July. This scheme allows first home buyers to purchase property and gain loan approval with a deposit of as little as 5%.
First home buyers will also not have to pay lender’s mortgage insurance under the New Home Guarantee, with the government acting as guarantor on the loan. It is currently available for owner-occupier Australians aged 18-or older, with an income cap of $125,000 for individuals and $200,000 for couples.
The Family Home Guarantee is another home buyer scheme gaining additional placements, with a further 5,000 available each year from July. Similarly to the New Home Guarantee, the Family Home Guarantee allows single parents with at least one dependent child to purchase property and gain loan approval with a deposit as little as 2%.
The remaining deposit size up to 20% will be guaranteed by the government so that single parents do not have to pay costly lender’s mortgage insurance. And unlike the New Home Guarantee, this scheme is available to first home buyers and previous owners, as long as the previous owners do not currently own property.
The new Regional Home Guarantee has also been revealed by Frydenberg as an assistance scheme for those hoping to purchase or construct a new home in regional areas in Australia.
As regional housing market values have skyrocketed since the pandemic began, particularly in New South Wales and Queensland, it’s getting harder for Aussies to purchase property in the regions. Up to 10,000 placements will be made available for would-be buyers from October 2022 under a Morrison government.
Interest rates may rise earlier thanks to federal budget
Another key issue impacting homeowners and would-be buyers from the 2022-23 budget is the indication that inflation may move faster as a result of the government’s cost-of-living relief plans. This may force the Reserve Bank of Australia (RBA) to lift the cash rate sooner than expected over the next year, hiking interest rates on home loans across the country.
The budget forecast for inflation suggests it may reach 4.25% this financial year, with wages optimistically tipped to rise by 2.75% in the same period. Homeowners and would-be buyers may remember that RBA Governor, Philip Lowe, has suggested it is waiting to lift the cash rate until key inflation targets are met, with low wage growth also a hindrance to lifting rates.
In response to Tuesday’s budget, economists have brought forward their forecasts for the next cash rate increase, with Goldman Sachs economists predicting a first cash rate hike in August, with three more to follow.
Further, cost-of-living relief from the budget, such as the $420 increase for the low- and middle-income tax offset (LMITO), the $250 one-off relief for pensioners and others on government payments, and changes to the fuel excise to reduce fuel prices, may put “upward pressure on wages and inflation”, said UBS senior economist, George Tharenou.
For existing and aspiring homeowners, this means that they may need to prepare themselves for higher interest rates on home loans sooner rather than later.
How to prepare for rising interest rates
While it’s expected that interest rates should fluctuate over a 20-30 year home loan, it’s worth mentioning that not only are household debt levels at concerning highs thanks to record-breaking property values, but the cash rate has not increased since November 2010.
This means there is an entire generation of homeowners with potentially large home loans who have never experienced an interest rate hike. Thankfully, there are actions you may consider taking now to help you prepare your household finances for higher interest rates and mortgage repayments.
Firstly, if you’re a would-be buyer or you’re looking to refinance, you may want to consider if fixing your interest rate could offer some budgetary relief. One of the advantages of a fixed rate home loan is that your interest rate is locked in for a set period of time, typically 1-5 years. This can offer some stability for your budget, as your repayments will not change during this fixed period, even if the cash rate continues to hike. You could also consider splitting your interest rate between both fixed and variable repayments, if this better suits your goals and financial situation.
Next, you may want to consider if your budget will allow you to take advantage of any home loan features you may have, such as an offset account or making extra repayments without penalty. Funds deposited into your offset account may help to reduce the interest payable on your mortgage. And any additional repayments or lump-sum deposits into your mortgage can go a long way in chipping away at your loan principal.
Further, if you’ve done the repayment calculations and are concerned you may struggle to afford multiple interest rate hikes, it may be worth considering refinancing.
To learn more about your options to keep your home loan repayments affordable, consider reaching out to our team of experts at Reduce Home Loans on 1300 733 823.
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