Finance advice
Damian Collins

How property investors can prepare for interest rate hikes

By Bianca Dabu

Property investors are encouraged to consider interest rate conditions to sufficiently manage their mortgages. Knowing where the rates are headed could help investors make the right decisions and maximise the rewards reaped from their investments.

Smart Property Investment’s Phil Tarrant and Momentum Wealth’s managing director Damian Collins share their thoughts on the interest rate trend in Australian real estate markets over the next five to 10 years, as well as its possible impact on investors.

Are interest rates going up or down in the next five years? In the far 10 years?

Damian Collins: Everyone is going to have an opinion on interest rates, and the best market consensus forecasts look at the 10-year government bond rate because everything is based off that. It’s what they call the risk-free rate in the market. And the 10-year bond rate is about 2.4 per cent. And so, all benchmark interest rates are based off the federal government bond rate. The market generally doesn’t expect rates to really change very much at all over the next 10 years. There will be some ups and there’ll be downs, but on average, over the next 10 years, they expect it to be much the same.

I’ll look at the future’s market also in terms of the 18 months where they’re forecasting that and again, at best a .25 per cent rise over that period of time. In fact, just written the AFI yesterday, there’s a forecast near of actually interest rate decline coming up this year. It changes week by week, something else will happen, but I’ll say it’s going up.

What will happen if interest rates went up to 8 per cent or 9 per cent?

Damian Collins: Can’t see that likely happening only because we’ve all adjusted to the new norm of borrowing at 4 per cent or thereabouts. Again, the interest rates are controlled by the reserve bank, it’s (an) independent authority separate to the government. It’s not meant to be influenced by the government—looking at it and controlling inflation, that’s what they use interest rates for. If we were to see interest rates back up at 8 per cent or 9 per cent, we’d really be talking about an inflation environment of 5 per cent and we’re nowhere near that. In fact, inflation in Australia is barely over 1 per cent at the moment.

What is likely to cause the inflation rate to go up?

Damian Collins: Generally, it’s wages, but now with the more global economy and downward pressure on prices through the competitiveness, I just can’t see it happening. My gut is that we’re in a fairly long period of generally on-average lower rates than we’ve seen for a long time, but we will see some cycles within that year. I’ll definitely put them up at some stage in the next five years, and I’ll probably drop them again as well.

How can investors work through the changes in interest rates?

Damian Collins: I guess, what I would say to all investors is you can’t control it. You can only control what you can. The best thing, if you’re already concerned about interest rates, is look at locking in something. Five-year rates are still very competitive. Some of the banks are doing 10 (years), but not all of them. You can get five-year rates—very competitive rates. That would be the best bet if you’re really concerned about interest rates.

If you’re really concerned about it, you can’t deal with the ups and downs and the fear of the unknown, just go and lock your rates in. They’re pretty competitive.

Any more advice for investors regarding interest rate changes?

Phil Tarrant: We had a good look at how banks are assessing investors’ serviceability and a lot of the banks now assessing you on an interest rate a lot higher than what you’re getting, it’s like (7.5 per cent). Most people are already getting assessed at (that) rate. If you’re investing in property and you’re concerned about interest rates going up to 8 per cent or 9 per cent, just borrow on the basis that it is 8 per cent or 9 per cent. So, what that means is you want to have the capacity to comfortably service mortgage debt and service your portfolio if rates are at 8 per cent, 9 per cent. Some would say that’s just best practice.

I look to have a considerable amount of fat in my portfolio in terms of my ability to service debt associated with it, so I call it the “sleep-at-night factor”. I don’t do it at 8 per cent, 9 per cent, but I do it around the 7 per cent or 7.5 per cent. I know that if that were to happen, I’m still okay. And it’s not a bad place to be.

Tune in to The Smart Property Investment Show’s Q&A session to know more about the perils of procrastination, as well as how buyers can compare insurance brands and find the right products to suit their needs.

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  ["id"]=>
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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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  string(72) "mortgages-in-a-tighter-lending-economy-and-why-brisbane-is-a-good-option"
  ["introtext"]=>
  string(255) "

Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

" ["fulltext"]=> string(818) "

To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1203 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

" ["fulltext"]=> string(2323) "

Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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