Reserve Bank 0.5 percent interest rate hike the first of many realestate expert Lloyd Edge claims


Real estate expert predicts this month’s 0.5 per cent interest rate hike will be the first of many – and reveals EXACTLY how much you need to be saving to stay afloat amid sky-high inflation

  • Aus Property Professionals’ Lloyd Edge predicted 0.5 percent interest rate hike
  • Mr Edge says people should prepare for more 0.5 percent increases soon
  • He says a hard and fast approach to increases is needed to combat inflation

A real estate expert who predicted the Reserve Bank’s landmark 0.5 per cent increase in the official cash rate this week says we should expect similar jumps in months to come.

Lloyd Edge from Aus Property Professionals told FEMAIL the Reserve Bank has a better chance to ‘get on top of inflation‘ if they continue with the ‘hard and fast’ approach.

‘Most economists predicted a rise of between a quarter and 0.4 percent but yesterday’s decision didn’t shock me and I won’t be surprised if they do it again in July,’ he said.

Lloyd Edge from Aus Property Professionals told FEMAIL the Reserve Bank has a better chance to 'get on top of inflation' if they continue with the 'hard and fast' approach

Lloyd Edge from Aus Property Professionals told FEMAIL the Reserve Bank has a better chance to ‘get on top of inflation’ if they continue with the ‘hard and fast’ approach

‘Steep increases can scare people a but but over the long term it is beneficial.’

Mr Edge, who is the author of Buy Now: The Ultimate Guide to Owning and Investing in Property, says the hike doesn’t spell doom and gloom for home owners.

And while he admits newcomers to the market and highly-leveraged mortgage holders may struggle there are things they can do to survive further hikes.

‘We have to remember we have had very low interest rates, and appreciate that,’ he said.

‘New buyers have seen something of an interest rate honeymoon period, some of them probably got a little bit excited in that period but that’s OK if they are careful now, or even if they refinance.’  

He said some families will have to find an extra $350-per-month to service their loans – but it should be possible.

‘When banks assess you for a loan they do it at a rate that’s three percent higher than the one you are applying for,’ he said.

What are Mr Edge’s top tips to beat rising interest rates? 

1 – Speak to a financial advisor and/or mortgage broker

2 – Ask your bank for a reduced interest rate

3 – Do a budget to see where you spend your money and what you can cut ie – meals out and takeaway

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‘If you are finding the increase difficult then it is time to take a look at your budget, cut things like food delivery, your daily coffee and Netflix subscriptions.’ 

And if you are spending more than 30-percent of your income on mortgage repayments it could be time to look into other options.

‘This is called mortgage stress. You should speak to a mortgage broker or financial planner and even look to refinance your loan with another bank at a better rate,’ he said. 

While buffers are implemented to protect buyers, Mr Edge admits the soaring cost of living has made it more difficult to find extra money in the household budget.

‘Generally people could cope with an interest rate rise like this,’ he said.

‘But there is the additional cost of living pressure associated with the inflation we are seeing which has impacted things like fuel, food, gas and electricity.’

The humble iceberg lettuce has become an icon for soaring food costs – after  shoppers hit back at supermarkets charging $12-a-piece. 

The cost has soared so high even huge companies have been impacted – with KFC replacing the vegetable with cabbage on key menu items. 

Mr Edge believes interest rates will level out by June 2023, and expects the stabilised rate to sit at about 2.5 percent. The official cash rate currently sits at 0.85 per cent.

‘Typically anything with a two in front of it is still considered to be a low rate,’ he said.

Although he says he ‘doesn’t have a crystal ball’, there are things that can impact the trajectory.

If banks pass on the increase in full, Australians paying off a $600,000 home at a variable rate will now have to handover about $127 a month more

If banks pass on the increase in full, Australians paying off a $600,000 home at a variable rate will now have to handover about $127 a month more

‘The new Labor Government wants to increase the minimum wage – but that could push inflation higher, it could get out of control.’

When Mr Edge bought his first property interest rates were at six percent – he doesn’t expect they will come anywhere close to that.   

‘I see it stabilising between 2.5 and three percent. I don’t expect it will get anywhere near as high as six or to 18 or 19 percent like we saw in the early 90s,’ he said.

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Mr Edge said while he expects property prices to fall across many of the metro markets he thinks regional areas will continue to thrive.

‘While you might not be able to buy a home in your dream location now you can still get on the property ladder by rentvesting in smaller markets,’ he said.

He also suggests people continue to save, despite the huge increases in living costs.

‘You should be trying to save ten percent of your earnings if possible, for a rainy day,’ he said.

The 0.50 per cent jump comes after the Reserve Bank moved rates by 0.25 in May to curb spiralling inflation, which hit 5.1% in the first quarter.

The change in rates mean Australians paying off a $600,000 home at a variable rate will now have to handover about $127 a month more with their repayments going from $2,890 to $3,017.

Treasurer Jim Chalmers admitted the rising costs would hit Australian families hard.

‘This will be very difficult news for all of those Australians who are already facing the skyrocketing cost for living in this country,’ he said in Brisbane on Tuesday after the rates rise was revealed.

‘This cost of living crisis has been brewing for the best part of a decade. It will take more than two and a half weeks to turn around.

‘We have an incredibly difficult combination of challenges – high and rising inflation, rising interest rates, falling real wages…

Why do interest rates need to rise?

The most basic principle of economics is supply and demand.

When supply outstrips demand prices will fall, but when demand is great and supply is scarce the cost of products will rise.

That’s why something rare and in demand like gold is expensive, whereas something bountiful such as potatoes is relatively cheap.

This rule also applies to money itself.

Huge Australian government stimulus during Covid totalling more than one third of a trillion dollars – at a time of record low interest rates – has meant there’s more money competing for the same amount of goods and services.

The extra supply of cash is what’s now driving up prices (along with a range of other global factors including the war in Ukraine and supply chain chaos in the wake of the pandemic).

But by raising the cash rate and making money harder to borrow, it should limit the supply of money and help bring prices down.

Cold comfort to those forced to shell out more on their mortgage.

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‘Our ability to respond to these challenges is constrained by the fact that the budget is absolutely heaving with Liberal debt.’

The Big Four financial institutions including the Commonwealth Bank, ANZ, Westpac and NAB all raised interest rates in line with the RBA last month and are expected to do the same again in a move that will cost the average homeowner $2,000 a year.

Further rapid-fire rate hikes are widely predicted to follow every month until at least the end of the year.

Economists had widely predicted the cash rate to lift by 0.25 or 0.40 per cent with the shock move indicating inflation could be even worse than first thought.

At the same time, supply chain chaos still lingering on the heels of the Covid pandemic is adding to the problem.

For Australia, the recent floods and bitterly cold weather has also impacted on food production and energy demands.

How a 0.5 percentage point rate rise will push up YOUR mortgage

$500,000: Monthly repayments rising by $132 from $1,987 to $2,119

$600,000: Monthly repayments rising by $159 from $2,384 to $2,543

$700,000: Monthly repayments rising by $186 from $2,781 to $2,967

$800,000: Monthly repayments rising by $213 from $3,178 to $3,391

$900,000: Monthly repayments rising by $239 from $3,575 to $3,814

$1,000,000: Monthly repayments rising by $265 from $3,973 to $4,238

Calculations based on discount variable mortgage rates rising from 2.54 per cent to 3.04 per cent to reflect the Reserve Bank of Australia cash rate increasing by 50 basis points from 0.35 per cent to 0.85 per cent

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