The Reserve Bank of Australia has increased the cash rate for the fourth month in a row to 1.85 per cent and it looks like it won’t be the last time either. So we sat down with Loan Market mortgage advisor Matt Clayton who takes care of buyers and investors across our region. We asked him the six most pertinent questions prospective buyers, investors and owners are asking in the market right now.
What’s the sentiment among your clients in the Lower North Shore?
MATT: There is no denying that there is a level of uncertainty in the market at the moment. The RBA has raised the cash rate and economists are predicting that will continue up to about another percentile. With clients who are on set budgets for their mortgage, we’re looking at how we can rearrange the mortgage as rates rise.
For me, enquiries have slowly started to shift from purchasing to refinancing. We’re having conversations about how they can tidy up or improve their debt position as we move into an environment where rates are on the rise.
What’s more, investors are returning to the Lower North Shore because yields are looking more attractive in the area. Rental returns are trending upwards which is looking more attractive to those looking to nab an investment in one of Sydney’s most desirable locations.
In your view, where is the market at right now?
MATT: Compared to the dizzying heights seen in 2020 and 2021, we are starting to see a slight flattening. The desire to purchase is still there, but higher interest rates impact how much buyers can borrow from the banks. If you can’t borrow as much, you also can’t buy as much. In the Lower North Shore, what you find is that people have the liquidity to go higher. What’s more, salaries are much higher today than they have been in the past.
When I first started in the industry, an $80,000 annual salary was impressive. Then, it was $200,000 and today, I wouldn’t blink at a $500,000 combined income in the Lower North Shore. That means that affordability is still there, but it can’t necessarily stretch as far as it could before.
How are banks behaving in light of the recent cash rate rises and the inflation rate, which is currently sitting at 6.1 percent?
MATT: A lot of the profitability in a bank is lending money so its business as usual. But they are keeping a close eye on incomes and serviceability rates. The most interesting thing I’ve seen lately is that the major banks and second tier lenders are making it easier for self employed borrowers to get access to loans. If it makes sense, and an individual has regular income, they will be treated like a salaried person. A year ago this wasn’t the case, and you’d need to provide a long list of documents and evidence. As a result, the processing time is being brought down. During the worst of Covid, it could be up to nine weeks before the banks would look at a file, but now that has improved.
For those who currently have fixed-interest mortgages, what is your advice?
MATT: There is uncertainty around interest rates and where they will go, so people are scratching their heads wondering what the next few years will look like. People who have fixed their interest rates don’t know where they will be when their fixed rate term has expired. We are telling clients that the best thing to do is get a head and build a surplus of cash and pocket it away for future repayments. Most people living in the Lower North Shore have benefited from the record low interest rate environment that we’ve enjoyed in the past few years and done exactly that. I have found that most people are ahead on their mortgages so they are in a position to lean on that when repayments do go up.
Where are the opportunities in the Lower North Shore?
MATT: First home buyers with higher incomes are in a great position to be buying in the $800,000 to $1.5million mark. For a dual income family, two incomes can sustain a mortgage on a property at that price point. Now there’s also the First Home Buyer Choice scheme, which allows buyers to choose between an upfront payment, or a smaller annual property tax. That means buyers can choose to add the funds saved for stamp duty and add that to their capital instead.
What’s the main recommendation you’re giving clients right now?
MATT: At the end of the day, people will still buy houses regardless of the interest rate, as we have seen in the past. My advice is always that if you’re passionate about a house, it’s irrelevant what the purchase price is; if you can afford it, and are going to be there for a long time, what’s going on with interest rates is irrelevant.
I’m telling my investors that they have to know their yield. While we can’t control capital growth, an area like Mosman or Cremorne Is a premium suburb. In the long term you’re bound to get that value. After all, they’re not making more beaches and waterfronts. I would just say that purchasing needs to be a five to ten year play. It’s not the time to attempt to make a quick win through a flip due to the cost of renovations. If you’re a builder, and can manage those labour costs, that’s potentially a more feasible option, but for the rest of us, it’s not the market for it.
Talk to Matt if you would like any lending advice.
Matt Clayton
Mortgage Advisor
Loan Market Lower North Shore
0414 877 333
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