Don’t let an interest rate rise stop YOU from investing and setting up the LIFE YOU WANT!!
There is currently a huge amount of negative sentiment around the looming interest rate rise, mainstream media are making the most noise around this. With everyone sick and tired of hearing about Covid they must get click bait and views another way and interest rate rises are an angle they are going with. Let’s remember this is the same main-stream media that predicted a 40% housing crash in 2018 that we are all still waiting for.
Main-stream media outlets will try and sell ice to an eskimos if it means they’ll get more views.
Today I want to break down what an interest rate rise will look like and what the real impact of this is. I’ll also be breaking down several positive indicators that the main-stream media aren’t focusing on because they are a bunch of pelicans that can’t get more views and create fear from these positives.
Let’s break down what the rate rise looks like in a dollar figure!!
As per finder.com.au the average variable interest rate as of March 2022 is 3.32%. If we calculate the monthly repayments on a $500,000 mortgage at 3.32% principal and interest repayments over 30 years this would be $2,196 per month.
If we are to use a 0.25% interest rate rise on $500,000 mortgage at 3.57% principal and interest repayments over 30 years the new monthly repayment would be $2,265. $69 a month…. $828 a year…..$16 a week. $16 a week is a very small amount when Australian’s have historically high savings off the back of the last two years of covid. I’m positive that anyone would be able to reduce their savings $16 if needed to service their mortgage.
Average rental yields increased in the last 12 months!!
Now let’s look at some positive sentiment that isn’t being spoken about from the mainstream media. As per SQM research as at the 4/3/2022 the capital city average weekly rent has increased 13.8% in the last 12 months. As at March 2022 the average weekly rent is $625 in comparison to 12 months ago in March 2021 where the average weekly rent was sitting at $551. On average this is an increase of $74 a week. Far outweighing a 0.25% rate increase based off a $500,000 mortgage!
Vacancy rates are at extreme lows and what this means!!
Currently vacancy rates are at extreme lows, this is a factor contributing towards the increase in average weekly rents. Due to the low vacancy rates, less properties are available for rent and in turn due to the low supply and high demand we are seeing an increase to the weekly rents. These low vacancy rates showcase that the weekly rents are going to increase moving forward, investors being able to increase their rental income further. This will further mitigate the risk with a rate rise.
At our Buyer’s Agency Taylored Property Wealth all suburbs that we invest in have vacancy rates below 1% with some suburbs having a vacancy rate of 0.00%.
Capital Growth Performance
In the last 12 months there has been a huge national boom with values rising 20, 30 or 40+% in a 12-month period. Selecting areas based on strong fundamentals will ensure you are selecting areas primed for growth, keep in mind this growth won’t be to the levels seen in the last 12 months as this isn’t sustainable growth.
As a borrower’s house value increases this is decreasing their loan to valuation ratio. Many lenders base their interest rate off the LVR and tier this interest rate. Therefore, as prices increase and the LVR decreases you can go back to your financial institution and have a rate review. You may be able to decrease your interest rate. For example, if your LVR was at 90% you may have had a rate of 3.00% and seeing a 20% increase your LVR now being at 70% the interest rate applicable can be lower at say 2.90%. You would contact your financial institution and ask for a rate review and provide evidence to support the house value through comparable properties. Please note this is a case-by-case basis and you need to have this conversation with your financial institution.
Across our personal portfolio we have been able to lower the rates across all properties reducing repayments, whilst achieving strong rental increases without doing anything to the properties.
It is extremely important to not listen to mainstream media, where they are focusing on just one element, there are many different elements to look at when it comes to property investing. If you are purchasing properties in areas that have strong fundamentals in conjunction with being a proactive investor there are ways to increase your passive income mitigating your risk. Mainstream media have been making noise for decades, don’t let them create fear and cause you not to act! Be one of the individuals who look back in 20 years and can say I’m glad that I purchased when I did.
If you have any questions in regards to the information discussed here today or you would like help with ensuring you get your next property investment purchase right, smashing it out of the park, please reach out to us at info@tayloredpropertywealth.com.au.
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