What can you do about the rising interest rates?
Interest rates are on the rise. There’s no denying it. Over 30 lenders have increased their rates since December alone.
It’s time to look at your options so that you can continue to maximise your investment and safeguard your cashflow. If you currently have a mortgage, or are looking to purchase a property in 2017, there are a few things you might need to consider now that Donald Trump has been elected president.
“How and why does the American political landscape affect our mortgage rates?”, I hear you ask? Good question.
It has been called the “Donald Trump effect”
To summarise, one of Trump’s key promises under his campaign was to spend $1 trillion in infrastructure over the next 10 years. His fiscal stimulus package of infrastructure spending and tax cuts could see
inflation further fuel the rising rates.
This is important because America has been the foundation of the global economic system and remains the world’s key reserve currency. The cost of money is generally determined by the US 10-year treasury benchmark which has increased by 30% since the election. Presently, banks are not completely funded by their savings products and they rely heavily on borrowing from international capital markets and overseas investors. As the competitiveness, risk and cost of borrowing increases, our interest rates increase as banks scramble to offset the higher cost of funding on their profit margins and temper any overflowing regulatory and monetary risks.
Our rates are rising
We can already see that over 80 lenders have pre-emptively increased their rates on over 200 loan products since the election. Apprehension has driven rises of up to 65 basis points, or more simply put – an extra $650 for every $100,000.
We have experienced record low rates over the past few years, taking our chances with variable rates as they have worked in our favour so far. However, if you have a mortgage, it will be worthwhile re-evaluating your cash flow and investment strategy while you still can lock in a fixed rate before further increases. Towards the end of last year, we have seen conflicting information from various media sources that predicted rising and falling interest rates so we don’t blame you if you have been caught up in the confusion. Borrowers will need to assess their options to lock into fixed rates or split loans now.
Is property still a good investment?
Should you be looking at investment properties? Are Donald Trump’s policies looking likely? Most of it seems to be based on speculation that he will come good on his election promises as he has his party’s support on his stimulus package. Nevertheless, don’t be disheartened as there is no right or wrong answer here.
One of the biggest influences on someone’s ability to purchase property is affordability and many people assume that because of this, interest rates are the key influencing factor for property values. However, interest rates are only one interest-related factor influencing property values. Interest rates also affect capital flows, the supply and demand for capital and required rates of return on investment for investors, interest rates will drive property prices in a variety of ways. The location, convenience and quality of a property will generally secure a good yield in any market.
Like all investments, there is always a level of risk involved. You can play it safe and lock in the repayments on your investment or you can take the risk and see how the market responds to Donald Trump’s leadership as it unfolds. If you’ve negatively geared yourself, worried about income security or have little room to move in the budget, we recommend playing it safe in this market as the continuing rise in rates may threaten your ability to meet future repayments.
Founded by Kevin Wheatley, Bayside Residential and Commercial Mortgages draws from over three decades of business and finance experience. Kevin is a recognised industry expert, recently winning the Choice Commercial Professional of the Year Award for 2015/16.
For further information or advice on purchasing your property or re-financing, please call Kevin on (02) 8355 2017.