We’re ending the year with the Oracle Lending team analysing the property market for 2023.

Across Australia, home buyers have seen house prices drop by up to 10% since the peaks in early 2022. In response to inflation fears the RBA has increased the target cash rate by 275 basis points to 2.85% in the last 7 months to November 2022.

Most economists are predicting further increases will take the target cash rate to 3.10% by early 2023, some are predicting a peak of 3.85% to 4.1% by the end of 2023.

Despite the fall in property prices, higher interest rates have reduced housing affordability. An average couple have seen their borrowing capacity reduced by more than 20% from almost $1M to less than $800k. This is expected to put further downward pressure on house prices in 2023.

In response to high inflation, the Reserve Bank of Australia (RBA) has lifted the cash rate 7 months in a row since May 2022. The RBA predicts inflation to hit 8% by the end of 2022, their inflation target range is 2 to 3%.

Mortgage “Loyalty Tax”

The RBA reports on the discounted interest rate offered by banks to new home loan customers against the interest rate offered to existing bank customers.

In recent months this gap (“tax”) has hit a record high of almost 0.50 of a percentage point. This indicates that banks are not proactive when reviewing existing clients interest rates.

As part of our ongoing customer service offering, the Oracle finance team has implemented regular reviews of all our clients current interest rates. This is designed to keep banks on their toes, pushing back on this “loyalty tax”.

It’s rare that the finance team can’t negotiate a better rate on a client’s current home loan. Where the negotiated rate remains above market, refinancing options can be discussed with the client. Sometimes this may be the only way to achieve a more satisfactory financial outcome for our clients.

First Home Buyers

workers compensation

As the value of residential property in Australia has continued its fall, first home buyers’ purchases have increased, according to CoreLogic.

Housing market data has confirmed the value of Australia’s 10.8 million residential real estate market was $9.6 trillion at the end of September 2022. According to CoreLogic owner-occupier lending fell 2.7 per cent, while first home buyer financing “shot up 7 per cent in August”, following declines in June and July. This resulted in the portion of first home buyer finance increasing to 23.4 per cent of total owner-occupier lending, still below the decade average of 23.8 per cent.

State and Federal governments provide incentives to First Home Buyers which can include:

First Home Guarantee

Under the expanded Home Guarantee Scheme, the Government is now releasing 35,000 First Home Guarantee places each year to support eligible first home buyers to purchase a new or existing home with a deposit as low as 5% without paying Lenders Mortgage Insurance [LMI].

Regional First Home Buyer Guarantee

10,000 guarantees will be issued from 1 October 2022 each year until 30 June 2025 to support eligible applicants living in regional areas to buy their first home in a regional area with a deposit as low as 5% without paying Lenders Mortgage Insurance [LMI].

Help to Buy Scheme

This is a shared equity scheme wherein the government helps first home buyers purchase a home by contributing up to 40% of the property price for new homes and 30% for existing ones. The Federal government has not confirmed a date for when the scheme will commence.

First Home Buyer Assistance Scheme
Variations across different states

Eligible first home buyers are entitled to a concessional rate on stamp duty.

First Homeowner Grant
Variations across different states

Eligible first home buyers may be eligible for a grant on a newly built property.

Single Parent Buyers

In addition, the Federal Government has a Family Home Guarantee scheme whereby 5,000 guarantees will be issued each year until 30 June 2025 to support eligible single parents with at least one dependent child to buy their first home or to re-enter the housing market with a deposit of as little as 2%.

Property Investors

After years of falling rental yields and high, pandemic-influenced vacancy rates in Sydney and Melbourne, the pendulum has swung, and it is now a landlord’s market in some parts of Australia. This means many property investors are now seeing greater benefit because of high demand and tight supply levels within some parts of the rental market. So, after a few years of lower rents, landlords are now seeing increased rental income.

New figures from CoreLogic have found that in the year ending June 2022, capital city and regional rents have risen by 9.1% and 10.8% respectively, a positive sign for property investors.

Demand is currently booming in the rental market as overseas migration; the return of international students and the easing of COVID-19 restrictions add pressure to the market. As such, renters are willing to pay more to secure a suitable property and this increased demand enables property owners to filter applicants and select higher-quality tenants. The low vacancy rates recorded across the country are partly due to the behaviour of property investors, who have been selling property more frequently than buying, causing the rental pool to shrink.

Written by Oracle Lending team

Need some advice on lending, contact our Lending Team to review your loan.

Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.
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