What High Inflation Means for Home Financing
Rising inflation and interest rates have shifted the way Australians approach home financing, pushing many to adopt smarter financial habits. As living costs rise, mortgage holders are rethinking their budgets and making more informed choices, which could have long-lasting impacts.
Inflation, Rates, and Property Market Resilience
The Reserve Bank of Australia (RBA) has raised rates 13 times since mid-2022, with the cash rate now at 4.35%. While inflation has dipped below 3% for the first time in years, home prices remain high. According to PropTrack, the national median price rose 5.6% over the past year, even as mortgage commitments grow more challenging. Nearly half of homeowner’s report feeling the strain of repayments.
Adjusting to a High-Rate Environment
The new financial landscape has encouraged Australians to closely track their spending, avoid overspending on loans, and seek ways to reduce costs. Many have turned to refinancing to secure lower rates, while others have relied on family for support. The “Bank of Mum and Dad” has become more common, with parents stepping in through gifts, loans, or acting as guarantors to help young buyers manage affordability pressures. In fact, 2 in 5 first home buyers use the “Bank of Mum and Dad”, making it one of the largest lenders in Australia
Strategies for Managing Home Loans
In light of these challenges, here are some practical strategies to help manage home financing:
- Refinancing: Borrowers have increasingly looked to refinance, particularly over the past two years, to lock in better rates. This strategy, though declining recently, remains useful for those seeking financial relief.
- Using Offset Accounts: By placing funds in an offset account, borrowers can reduce interest on their loan. For example, a $10,000 offset could save hundreds annually on interest, helping balance loan costs
- Debt Consolidation: Some homeowners have combined debts, such as credit cards or car loans, into their mortgage to reduce monthly expenses. While this can provide short-term relief, it’s wise to make extra payments to avoid extending debt for decades.
Looking Ahead
As high inflation and interest rates shape the property market, homeowners are becoming more financially savvy. Should the RBA reduce rates in 2025, we may see renewed interest in variable rate loans and possibly a bump in property prices as borrowing costs ease.
Until then, strategies like refinancing, offsetting, and careful budgeting will continue to be crucial tools for managing home financing in this challenging environment.
