Interest rates to rise in 2017

Interest rates are expected to rise this year, according to research by Digital Finance Analytics.  Are you one of the 20% of homeowners so stretched, they couldn’t meet the repayment costs of a minimal 0.5% rise? What about one of the 25% who would struggle with a 1% rise? Or maybe one of the 42% who would face financial pressure if home loan interest rates were to increase from the recent (historic low) average of 4.5% back up to the long term average of 7%.

Investors face cash flow squeeze

Data from the Australian Bureau of Statistics points to wage growth being too low to provide homeowners with a “get out of jail card” if interest rates rise. Property investors face the same problem. Without significant growth in either wages or rents, the capacity of investors to service their loan is severely compromised.

Martin North, Principal of Digital Finance Analytics, points to Australia’s love affair with property as being at the core of the issue. However, could it be non-property personal debt that is dragging on your cash flow? Sometimes it is as simple as being oblivious to how your own spending habits will create stress when interest rates rise.

Real world choices

What are your options?

  • Take on another job?
  • Sell your properties, at what might be the worst possible time?
  • How about adjusting your discretionary spending to accommodate the additional loan costs?

Where to start?

Sometimes Financial Planning is not about where to invest your money.  Often it is about where to find additional cashflow to allow you to better manage your current strategy (instead of abandoning it). According to Moneysoft statistics, most people reduce their spending by up to 35% within 18 months of beginning a managed cashflow management service, like Bill Butler. This can create the surplus needed to allow homeowners and investors to meet the additional loan costs that rate rises will bring.

Bill Butler knows money

We know how to analyse your budget to find the money spent on “must do” items versus money wasted on the “nice to haves”. We are committed to improving the financial lives of our clients so that they can achieve their financial goals. We manage your money to ensure that you get the best cashflow outcomes for your personal situation. We can’t make you more money, but we can make sure that you get the best outcomes from what you have. Get in touch to discuss what impact a 1% interest rate rise would have on your household budget.

For further details on Digital Finance Analytics research see their article summary, How Households will respond to interest rate rises.

 

Stephen

Stephen has over 20 years experience working as a strategic Financial Planner. He is passionate about assisting Financial Advisors and Businesses get proactive and make a difference to their client or employee success. LinkedIn Profile