The outlook for homeowners looking to sell or refinance is expected to be challenging due to recent developments in the economy. The cash rate has increased by 0.25 percent this week, marking the 10th consecutive increase that has brought the rate from just 0.1 to an 11-year high of 3.6% at the start of May last year. As a result, on a $605,000 mortgage, the cumulative increase in rates has added $1,190 to monthly repayments. Interest rate rises are likely to continue due to stubbornly high inflation, resulting in negative consumer sentiment.
One concerning element is that one in five home loans will switch from fixed to variable interest rates, leading to a sudden rise of 2.5 to three percent in interest commitments overnight. This change can have a significant impact, particularly for those on a $500,000 loan. Therefore, the first six months of the year are expected to be challenging. The performance of the property market will depend heavily on interest rates and international events that could affect the Australian economy.
Borrowers can expect tighter lending conditions for most of this year, resulting in less borrowing power and less to spend on property. Looking towards the third quarter of 2023, the outlook is more benign, but this positive outlook is contingent on several events coming to pass. First and foremost, interest rates need to reach a ceiling. Some economists predict that interest rates will peak later in the year, and there is a possibility of a rate cut by the end of 2023. A stop to the rate rises will give borrowers the confidence to re-enter the market and proceed with their purchase plans.
In these uncertain times, borrowers need to turn to someone with the knowledge to get a great outcome for them. At Smart Mortgage, our managers have the depth of knowledge derived from years of experience to help find solutions that you may not have previously been aware of.
Tighter lending conditions are often an indicator of a cooling market, and we expect a more subdued market in 2023 compared to last year. Brisbane seems well placed to ride out the year compared to Sydney and Melbourne, with net internal migration numbers at historic highs. Many property owners in Victoria and New South Wales are looking to move to Queensland, and most will settle in and around Brisbane. Sustained high net migration will continue to support the entry-level market, particularly for first-time buyers wanting to enjoy the city lifestyle. Despite this, investors are yet to flood back into this market, allowing owner-occupiers to find good quality stock. This high-demand/low-supply scenario is underpinning house values, which is why we think Brisbane will do reasonably well on balance. For instance, a renovated two-bedroom, one-bath, one-car unit in a traditional six-pack building located close to the river, parklands, and all the cool facilities West End has to offer, sold for $582,000 in January, indicating strong demand in the entry-level market.