What you need to know about bridging loan interest rates in 2022
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After two years of exponential price growth, Australia’s property market is shifting in 2022.
The latest data from CoreLogic shows national home values are dropping for the second consecutive month (down -0.6% in June 2022). While the steepest declines are happening in Australia’s big capital cities of Sydney and Melbourne, CoreLogic reveals that the peak of the market nationwide has well and truly passed.
One of the big driving factors behind changing property prices is this: interest rates are rising for the first time in two years. At the start of the pandemic, the Reserve Bank of Australia (RBA) slashed the official cash rate to 0.25%. This was further reduced to a historic low of just 0.1% in November 2020 to help shield Australia's economy from the impacts of the pandemic.
But, in May 2022 the RBA needed to take action to respond to rising inflation, disruptions in global supply chains and the war in Ukraine. We saw the first rise in May of 25 basis points, and another rate rise in June to take the official cash rate to 0.85% (with many economists predicting another half-point increase in July).
With many banks passing on these rate hikes in full, some buyers and homeowners are cautious about making their next move. The prospect of higher mortgage repayments and changing property values can create a lot of uncertainty about what the future holds.
However, there are practical steps you can take to understand your options and take out the right loan product to meet your needs. Let’s dive into what changing interest rates mean for homeowners and how Bridgit is helping Australians regain control in a changing interest rate environment.
Questions?
Our team of bridging specialists are here to help.
What challenges do homeowners face in a changing interest rate environment?
Before we go any further, it’s important to call out just how extraordinary the past two years have been for Australia’s property market.
Australia’s official cash rate has never been as low as we saw it during the pandemic. By dropping the cash rate to a historic low of 0.1%, banks and lenders were able to slash loan interest rates to historically low levels, too.
As a result, home values across Australia climbed by a whopping 24.6% between March 2020 and February 2022. However, this kind of exponential growth can’t continue forever. With inflation a big concern globally, the RBA needed to step in and put the wheels in motion to bring property prices back to more stable levels. While property prices might be softening, national home sales are still 13% higher than the previous five-year average.
As a homeowner, you might be wondering what this change in interest rates means for your property or your next move. Some of the key questions that might be running through your mind might be:
- Will interest rates keep rising?
- How will rising rates impact your mortgage repayments?
- How will a higher interest rate environment affect your buying or selling process?
Here’s what we know: interest rates are predicted to rise further in 2022, and may continue rising into 2023. We also know that rising interest rates can lead to higher mortgage repayments, particularly if all or part of your loan is set to a variable interest rate.
As for how rising interest rates will affect your buying or selling journey, that depends on a range of factors (including the area you’re buying or selling in, the type of property you’re dealing with as well as what loan products you’re considering). While some locations are seeing a steeper decline in values, other areas and property types are holding value.
What practical steps can homeowners take to navigate these changes?
While you can’t change the decisions made by the RBA, you can take steps to put yourself in the best position possible. A changing interest rate environment can bring a lack of certainty, but there are ways you can regain control over your property journey.
First up, if you’re concerned about changing mortgage repayments it could be worth moving all or part of your home loan to a fixed interest rate. While fixed interest rate loans are usually higher than variable loans, this can help you clearly budget for your repayments for a set period of time (usually anywhere from one to five years).
If you’re uncertain about what the future holds and you have extra cash to spare, it can be worth finding ways to pay down your loan sooner. Make sure to check the terms of your loan product to ensure you won’t be penalised for increasing your repayment frequency or making extra repayments.
Plus, now is a good time to boost your savings to ensure you have a financial safety net ready as rates rise. With some extra money stashed away, you’ll be able to navigate rising mortgage repayments with more confidence (and less financial stress).
How Bridgit is shielding homeowners from changing interest rates
We know many homeowners are worried about changing interest rates (particularly changing bridging loan interest rates).
At Bridgit, we’re not affected by changing interest rates and are proud to give our customers a greater sense of confidence around their bridging loan interest rates.
We even offer a 3-month interest-free period to help homeowners navigate their transition from one property to the next with confidence. Our simple online application process takes just five minutes and you can secure same-day approval to get you moving sooner.
If you’ve found your dream home but haven’t sold your current property, Bridgit is here to take the stress out of securing bridging finance by removing any concern about changing bridging loan interest rates.
Ready to get started? Find out more about how Bridgit’s bridging loans work and apply online.
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