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Brokers are encouraging clients to consider offset home loans and redraw accounts as many take advantage of increased savings rates.
According to NAB insights, there has been a 29 per cent increase in the number of new NAB savings accounts opened in the past three months — marking more than 1,000 new savings accounts opened between July–September 2022 compared to the same period the year prior.
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The bank has also seen a 1,200 per cent increase in the number of 12-month term deposits opened in the same period.
It comes as the central bank has lifted the cash rate to 2.85 per cent with banks passing on the interest rate hike to borrowers, while on the flip side, Australians with savings are reaping some benefit.
In justifying the seventh consecutive cash rate hike, the Reserve Bank of Australia’s (RBA) governor Philip Lowe said “inflation in Australia is too high” after hitting 7.3 per cent in September.
Mr Lowe noted that while higher interest rates and higher inflation were “putting pressure on the budgets” of many households, others had built up “large financial buffers” and “the saving rate remains higher than it was before the pandemic”.
While savings rates are averaging between 3–3.5 per cent, Tasmania broker at Up Loans, Kirsty Dunphey, recommended borrowers with spare cash use a redraw or offset account rather than savings to get “better power”.
Ms Dunphey explained given rates on a home loan outweigh the rates for those savings accounts and bar clients who have fully fixed loans, offset and redraw was a preferred choice.
As the cash rate “unexpectedly” nears 3 per cent, after the RBA tipped it wouldn’t raise rates till 2024, clients are wanting to know what rate they should be “pretending” their home loan is so they can set a repayment amount and breathe easy.
“We recommend pretending the home loan is 1–2 per cent higher than it is right now and set repayments at that (on owner occupied home loans) and then build up redraw,” Ms Dunphey said.
“We’re doing lots more refinances to smaller banks who are chasing hard with rates and covering costs in moving over.
“I’m also prioritising lenders who will provide great ongoing easy repricing through the broker for clients so the rates stay competitive over the years as so many more clients are seeing their ability to refinance lowered with each rate rise.
“For many others the confidence of a fixed rate is giving them that breathing space.”
However, as fixed rate loans begin to roll off, many borrowers will be hit by the increased rates, the Australian Prudential Regulation Authority (APRA) had warned, although it noted that there had not been any trend in loan defaults.
Ms Dunphey added 2023 was going to be a “harder year for single borrowers” — a huge proportion of Up Loans’ client base.
She said it was important her clients were keeping things “tight”, including no debt, reduced living expenses, and saving hard.
As the federal government continues its home guarantee program, Christian Stevens, broker at Shore Financial, said it was the silver lining for many first home buyers.
“We are also seeing a lot of first home buyers getting into the market and taking advantage of the record number of government grants and schemes,” Mr Stevens said.
“It’s a great time to buy at the moment.”
The home guarantee schemes that include the First Home Loan Deposit Scheme (FHLDS), New Home Guarantee (NHG), and Family Home Guarantee (FHG) have seen a strong uptake, with some states doubling their proportion according to National Housing Finance and Investment Corporation (NHFIC) data.
In addition, state and federal governments have announced shared equity schemes that provide eligible borrowers with an interest-free equity contribution of 40 per cent, with as little as a 2 per cent deposit, with the NSW government’s scheme passing Parliament.
However, while he was supportive of the NSW government’s First Home Buyer Choice, which will allow borrowers to choose between an annual fee or stamp duty on their property, it will have some downfalls, Mr Stevens said.
“Ironically, I can’t imagine this won’t push up the prices, even though the scheme is designed to help first home buyers get into the market,” Mr Stevens said.
“Anything under $1.5 million will be hot property, with the new annual land tax option for first home buyers.”
While property prices have been in decline this year on the back of rate rises, he expects prices across Sydney will “start to increase again” by mid-next year.
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