Have you ever said to yourself, “If only I had bought that property,” or, “I knew we should have fixed our interest rate,”? Hindsight can be both wonderful, and highly irritating at times!
Predictions are great, if they are based on data, local knowledge and experience – not attention grabbing headlines. We’ve combined our industry knowledge, data, and local expert knowledge to bring you our property and finance predictions for 2018.
Oh, before we go on, predictions and ideas mentioned in this article are the opinion of Mint Equity and are based on market knowledge and insights. You should always speak with your Financial Planner, Mortgage Broker and/or Accountant before you make any financial decision. Lecture over, here are our predictions for 2018;
Jump straight to specific topic
RBA cash rate 2018 forecast
Mortgage interest rates forecast
Interest rates and finance approvals for owner occupied properties
Interest rates and finance approvals for investment properties
Central Coast investment property market
Sydney investment property market
Central Coast owner occupied property market
Sydney owner occupied property market
Investing outside of NSW
Credit history changes will affect interest rates
RBA cash rate 2018 forecast
General sentiment from industry experts is that the RBA will hold the cash rate at 1.50 for the next few months, and increase gradually towards the end of 2018 to 1.75.
However, the cash rate is dependent on many factors including domestic and international economic conditions, unemployment figures, inflation, household debt, currency, and the stability of our financial markets and institutions. You can see why a cash rate increase is difficult to predict with 100% accuracy.
Always keep in mind that the comfortable target for the cash rate is between 2% and 3% so the government’s aim is to increase the rate, when the economy is strong enough to do so. Read more about the Monetary Policy.
ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve
As at market close on 31 January 2018
Mortgage interest rates forecast
If the RBA cash rate increases, it’s a clear signal that the banks can increase their mortgage interest rates, as their cost of funds have also increased.
If only it was that simple. The last two years have shown the banks increase and decrease their rates regardless of what the cash rate does. Most banks purchase their funds from overseas, so their costs of funds are impacted by international funding changes as well as local.
We believe that interest rates will continue to be segmented and increases will impact some borrowers more than others. It is however likely that all borrowers will see an increase in their mortgage interest rates towards the end of 2018 and credit history and activities will contribute to the rate payable. We’ll discuss this more for each segment below.
Interest rates and finance approvals for owner occupied properties
Pricing, lending appetite and competition will remain strong in 2018, benefiting borrowers. Owner occupied properties, particularly borrowers on a principal and interest repayment structure are the golden children of borrowers. This lower risk group of borrowers will continue to be flavour of the month (and year), so if you are looking to purchasing a property, structuring the loan as owner occupied on P&I repayments will ensure you get the lowest interest rate. Where the strategy is appropriate, fixing some or all of your home loan can be a good option for this segment.
Interest rates are likely to continue to be below 4% for this group but increase towards the end of the year, however a borrower’s credit history will soon affect the interest rate they pay. See below update on credit history.
“We believe that interest rates will continue to be segmented and increases will impact some borrowers more than others. It is however likely that all borrowers will see an increase in their mortgage interest rates towards the end of 2018 and credit history and activities will contribute to the rate payable. ”
Interest rates and finance approvals for investment properties
Investors have had a rough trot in 2017 and it will continue to be a rollercoaster ride in 2018. Securing a low investor interest rate will be based on timing and working with a mortgage broker to secure the latest lender promotion.
Since APRA and the government restricted the volume of interest-only lending, (popular with investors), each bank and second tier lender has been changing their rates to either encourage or discourage borrowers for banking with them. This lending segment is highly cyclical and will change from one day to the next. Depending on the timing and lender, it is still possible to secure a rate below 4% (just!) – however this will only be for strong investors with a large deposit, good rental returns and squeaky-clean credit history. Rates are likely to increase towards the end of the year.
Investors are encouraged to work with an experienced mortgage broker who has accreditation with as many lenders as possible to ensure they have options. They should keep an open mind about which lender they will consider, as most of the second-tier lenders are offering more favourable rates as they aren’t impacted by the interest-only portfolio restrictions as the big banks are. Read more about the lending changes.
Central Coast investment property market
The Central Coast will continue to be a strong market for investment property buyers due to the higher yields and lower entry costs. Infrastructure improvements, job growth and the coastal lifestyle will continue to draw renters to this region as living in Sydney becomes more expensive.
Holiday rental properties will remain attractive investments says Cathy Baker, Principal of Belle Property Killcare & Wamberal, “Many owners are enjoying lucrative returns and good capital growth on their holiday rental properties. The Central Coast region is a key area for holiday makers and Sydney investors who are able to enjoy the use of the property in between bookings”. In addition to the holiday market, the Central Coast provides a vast range of premium properties across both acreage and beach side suburbs. “We’re seeing consistently high levels of interest, particularly from Sydney buyers, in prestige properties on the Central Coast. The region is in high demand for buyers wanting the beach or acreage lifestyle without the Sydney price tag,” said Cathy.
“When value for money is similar in terms of house and land size, the Central Coast becomes a viable option for Sydney commuters as transportation improves.”
Interestingly, the Central Coast is now the most in-demand location in NSW for commercial property according to realcommercial.com.au.
Sydney investment property market
Investment in Sydney will see a decline in 2018 due to low yields, high entry costs and higher finance costs. Contributing factors include a potential oversupply of new units, reduction in overseas investor numbers and rumours surrounding negative gearing being abolished.
This is a segment where we will see the biggest price correction in Sydney as more new developments reach completion, buyer demand dries up, sellers will need to meet the market and lower their price expectations. Some Sydney suburbs will have lending restrictions placed on them by the banks due to the oversupply and lending will become difficult.
Central Coast owner occupied property market
The Central Coast has a three-speed market based on the price bracket. Sub $650,000 properties will continue to draw interest and buyer competition from First Home Buyers due to the stamp duty concession. Properties between $1m and $1.5m are also in good demand as Sydney buyers consider the Central Coast to live, as opposed to Western Sydney. When value for money is similar in terms of house and land size, the Central Coast becomes a viable option for Sydney commuters as transportation improves. Prestige properties above $2m move a little slower due to the nature of the market, however demand is still strong as value for money overrides Sydney properties.
Sydney owner occupied property market
Buyers looking to purchase a new home in Sydney will see some discounting, particularly if located in key investor suburbs. With all the media hype and high volume of listings in 2017, some owners may be reluctant to sell, and buyer interest levels will vary between price brackets. Many potential sellers will opt to improve rather than move, however if the property type is more appropriate to owner occupiers than investors, buyer activity will remain stable and capital growth will be lower than we saw in 2017.
Investing outside of NSW
In June 2016, we reported that Hobart was the suburb for property investors. And almost 2 years later, CoreLogic’s figures for the 12 months to September showed Hobart had seen the highest price growth in the country at 14.3 per cent compared to 12.1 per cent in Melbourne and 10.5 per cent in Sydney. They call Hobart ‘The king of capital gains’.
Yep, this is one of those hindsight times… “If only I’d bought that property!!!”
And to add salt into the wound, rental yields for houses in Hobart in 2016 were 5.3% with a median price of $335,000! Today the median house price is $645,000.
So, where’s the next investor hot spot?
Good question. We’re still compiling our research and we’ll get back to you. Make sure you subscribe to our newsletter to get our latest articles.
Credit history changes will affect interest rates
Treasurer Scott Morrison announced at the May budget that credit history data would be shared across both big banks and 2nd tier lenders from July 2018, which will boost the amount of information available in credit files, including home loan limits and repayment history. More data in the hands of 2nd tier lenders including credit unions will allow them to better assess a borrower’s risk and enable them to offer discounted interest rates to those who pay on time.
On the flip side, if your credit history and activities haven’t been great, it’s likely your interest rate will be higher. These changes will impact borrowers throughout the second half of 2018.
Read more about how compulsory credit history data will effect home loan borrowers.
Once again, predictions and ideas mentioned in this article are the opinion of Mint Equity and are based on market knowledge and insights. You should always speak with your Financial Planner, Mortgage Broker and/or Accountant before you make any financial decision.
Buying or selling on the Central Coast
To find out more about buying or selling on the Central Coast, contact Cathy Baker, Principal at Belle Property Killcare & Wamberal.
Mobile: 0414 241 005
Office: 02 4385 2141
Email: cathy.baker@belleproperty.com