Wrap it up: Key mortgage moments from 2018

 

Cash rate on hold for two years, and counting

This August marked two years since the Reserve Bank of Australia (RBA)’s last cash rate change. The rate remains steady at 1.5 percent.

According to RBA Governor, Philip Lowe, there is a range of factors which affect the RBA’s decision. The biggest factor remains Australia’s household consumption, including rising house prices, which does not keep step with incomes. Factors like the Australian dollar and global inflation also come into play.

As Lowe reminds us, the purpose of keeping the cash rate flat for now is “consistent with sustainable growth in the economy and achieving the inflation target over time.”

Tighter lending restrictions

On the back of Australian Prudential Regulation Authority (APRA)’s recommendations, and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services, lenders havetightened the reigns in 2018, when it comes to applying for a mortgage.

This means you need solid proof of income, and a healthy deposit behind you, along with a good understanding of your family unit living expenses. But this works out in your favour, ultimately. The intention is to make sure applicants more than comfortably qualify, which means that if rates go up in the future, you are less at risk of

mortgage stress.

Construction

Construction started strong in 2018, but according to Australian Bureau of Statistics, the total number of dwellings approved has declined since last December.

Construction may be declining due to flatter house prices, over supply, and cost of resources. According to the International Construction Costs 2018 report by built asset consultants Arcadis, Sydney, Melbourne and Brisbane rank in the 25 most expensive cities globally for construction. Some experts warn that the decline might continue. Adrian Hart, associate director of BIS Oxford Economics, says the construction could potentially halve over the next two years. We will have to wait until 2019 to find out how this pans out.

Falling house prices

2018 saw a correction in house prices. Prices in some capital cities have fallen for the first time since 2012. The total cost of the decline in the three months before June 2018 is $13.3bn, with capital city prices falling 0.7 during this period. The drop is most significant in Sydney, where prices fell 1.2 percent in the three months before June.

There are a number of factors affecting the drop. Oversupply, tighter lending criteria and disincentives for foreign and local investors are just the start. The thing to keep in mind, however, is that growth has been exceptionally high prior to this year, and it’s worth taking a long-term perspective.

“These are falls from pretty high levels,” says ABS chief economist, Bruce Hockman. “Sydney over the last five years is actually up 56 percent.”

To discuss how these factors affect you, and to start making a solid financial plan for 2019, book a chat now with your Smartline Adviser.

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