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Surge in home loan repayments

With prices going up for everything from petrol to tinned vegetables, and now the interest rate increase, are Western Australian homeowners ready for changing economic conditions?

A Bankwest analysis of mortgage repayments has revealed that increased savings and low interest rates throughout the COVID-19 pandemic placed homeowners in a better financial position than they were pre-pandemic.

Bankwest looked at the position of home loan repayments over the last 22 months and, comparing the figures to 2019 levels, found that 90 per cent of customers were ahead on their home loan repayments in March 2022.

Bankwest also found the surge in home loan repayments was driven significantly by a rapid uptake in home loan offset accounts, which grew 63 per cent from June 2019 to March 2022 – nearly triple the rate of personal savings growth for the period.

Realmark Urban Residential Sales Consultant Lucy Baker said most households had used the strong economic conditions as an opportunity to pay excess on their mortgages and had better positioned themselves financially.

“A minority may have borrowed more money than they can feasibly service long term or have not come out of the COVID-19 pandemic with increased savings – the virus has impacted each individual differently,” she said.

“There may be challenges ahead, however strong job prospects here in the state are promising and should offer homeowners security.”

Realestate 88 Inner City Director Brendon Habak said many homeowners and investors were ready for the interest rate hike, as they had saved well during the pandemic to counteract the anticipated rising costs.

“Low interest rates and repayment requirements, more savings placed in offset accounts, fewer international holidays and strong weekly rental income means cash flows during the COVID-19 pandemic have been quite good,” he said.

“The majority of WA homeowners have had good employment during the COVID-19 pandemic, as well as smaller mortgages than interstate homeowners.

“They are in a better position than they were pre-pandemic to weather a series of interest rate rises.”

Ms Baker said buyers had not been purchasing at their full capacity despite low interest rates strengthening their borrowing power.

“The banks’ assessment rates have a buffer of 2.5 per cent above the market rate as a minimum, some banks even assess at three per cent higher,” she said.

“While homeowners have enjoyed savings with record-low interest rates, banks have accounted for serviceability beyond these rates, and so have most homeowners.

“I do not expect to see duress selling with these gradual rate hikes.”

With the cost of everyday living and services on the rise, Mr Habak said homeowners needed to knuckle down on their budgeting and saving goals.

“Simple changes to lifestyle choices can easily offset the increase in interest rates,” he said.

“Reviewing your lender’s mortgage rate, your insurance premiums, your monthly subscriptions, as well as your frequency for dining out and the like, may result in homeowners being in a similar or sometimes better net position.

“Make a monthly budget to see where your fast spending occurs. Small changes in your spending, as well as your savings goal can make a huge difference.”

Ms Baker said buyers and sellers should consider the impact that rate rises might have if they were transacting during this period

“Firstly if you are on the market and are considering offers, vetting buyer’s finance is paramount,” she said.

“If the prospective buyer for your property is pre-approved, consider when they were pre-approved and if their borrowing limits may have changed.

“This should continue to be a focus for sellers as rate rises increase to normal levels to minimise the risk of the deal falling through, which could potentially hinder a seller’s sale outcome and costing them big money.”

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