What will 2023 bring for the Australian Economy? Interest rates are expected to rise further, home prices are predicted to continue falling, and the demand for refinancing is projected to increase, especially with the looming cliff of fixed-rate mortgages ending. But what does this mean for brokers, borrowers, businesses and property owners? Here's a look at what you can expect in the coming year.
This time last year, the RBA governor was still claiming that interest rates may not rise until 2024. Fast forward to the end of the year, the economy saw a total of eight interest rate increases as the central bank aimed to combat rising inflation. Despite these efforts, inflation remained high, and still rising. The December Consumer Price Index (CPI) showed a further increase, reaching 7.8% and woefully above target, indicating that more rate hikes could be on the horizon in 2023. According to Phil O'Donaghoe, the Chief Economist of Deutsche Bank, there could be four more interest rate increases before the central bank tapers, though the increases could be at longer intervals than the monthly hikes of 2022.
As the end of fixed interest rates approaches for many mortgage holders, there is a growing concern that a financial cliff is on the horizon. Many homeowners and purchasers during the pandemic took advantage of stimulus lead ultra-cheap fixed rates with the vast majority fixed around the 2% mark. The RBA estimates that by the end of 2023, around 23% of all Australian home loans, worth nearly $500 billion, will switch from fixed to variable interest rates. Repeat: 23% of borrowers could see an overnight increase in their mortgage payments of at least 40% sometime this year.
There will be consequences. In a well-functioning property market, there is an equilibrium between buyers and sellers, with prices set by supply, demand and critically – cost of debt. More than half of all owner-occupiers, 3.3 million households, currently have a mortgage. In a typical year, approximately 5% of the entire Australian residential dwelling market transacts. When the debt burden increases sufficiently, this tips the market off balance on both sides of the equilibrium – more sellers coming to market to offload too high debt servicing costs, onto fewer buyers who similarly cannot carry the debt burden. This inevitably leads to downward pressure on prices.
The RBA themselves confirm the theory on the assumption of the cash rate moving to 3.6%. According to their data on residential mortgage-backed securities, over 50% of all borrowers are projected to experience a significant decline in their "spare cash" – incomeless mortgage payments and essential living costs. Worryingly, 15% of these borrowers will see mortgage payments and essential living expenses grow to be more than their incomes.
Sadly not. Though rarely implicitly explained, central banks increase interest rates to reduce inflation. When inflation is high, it erodes the purchasing power of consumers, making it more difficult for them to afford the things they need, fuelling increased wage demands, and further exacerbating the problem of higher costs of goods and services. A spiral that is hard to control other than increasing interest rates. This addresses high inflation, alas, by also eroding the purchasing power of consumers - their “spare cash” is reallocated to debt servicing rather than consumption.
Not good news for businesses as demand slows for goods and services, corresponding with the fact that higher interest rates also apply to business loans. As business cash flows evaporate, unemployment appears to be more likely than wholesale wage growth.
The Australian immigration rate is expected to return to normal levels in 2023 after being heavily impacted by the COVID-19 pandemic. In fact, treasury forecast show a record year of 300,000 net warm bodies arriving on Australian shores by years end, a healthy increase on the 33,000 arriving in 2020.
Increased immigration brings a variety of benefits to the economy, including increased spending, increased demand for housing, and the addition of new talent and skills. This can result in higher economic growth and job creation, as well as a more diverse and dynamic economy. Additionally, regional immigration drives can help to offset declining populations in some areas, which can help to prop up the balance of economic activity across the country as Australia navigates the tricky year ahead.
After decades of mostly negative trade balances, Australia is experiencing an increasing trade surplus, with recent further increases due in part to the ongoing conflict in Russia and Ukraine. The conflict has driven demand for natural resources in Australia's direction, as countries seek to secure reliable sources of energy and raw materials. As a result, Australia's exports have been surging, a positive indicator of the strength of the Australian economy, and suggests that the country is becoming increasingly competitive on the global stage.
Increased demand in the year ahead for natural resources, such as coal and iron ore, should have a positive impact on the country's mining sector, creating jobs and boosting economic activity. The trade surplus is also expected to provide a boost to the Australian dollar, which should make imports cheaper, which in turn, does not hurt inflation busting measures discussed above.
Regardless of headwinds being faced as 2023 progresses, when comparing the net wealth of Australians to other countries, Australia consistently ranks high globally. According to the Credit Suisse Global Wealth Report, Australia was ranked as the eighth wealthiest country in the world in 2021, with a median wealth per adult of US$219,505. This places Australia ahead of many other developed countries, including the United Kingdom, France, and Canada.
Factors contributing to the high net wealth of Australians include its rich natural resources, strong financial sector, and consistent net immigration. Another factor contributing to the high net wealth of Australians is the country's property market, which has been characterized by rising prices and strong demand in recent years up until rate hikes mid-way through 2022.
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What will 2023 bring for the Australian Economy? Interest rates are expected to rise further, home prices are predicted to continue falling, and the demand for refinancing is projected to increase, especially with the looming cliff of fixed-rate mortgages ending. But what does this mean for brokers, borrowers, businesses and property owners? Here's a look […]
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If you require additional cash flow for your business or other personal reasons, using the equity in your property may be a viable option. Contrary to the thoughts of many, you can use personal real estate which has an existing mortgage as security for a loan provided there is equity available.
Whether to invest in working capital, upgrade premises or facilities, purchase equipment or buy property, a second mortgage loan (or Caveat Loan) can provide money in less than a week from application to released funds.
Throughout the course of running a business owners are faced with difficult decisions and constant challenges. Among those are decisions relating to cash flow management, and more specifically, business finance.
Caveat loans (https://simplyfunds.com.au/blog/fast-caveat-loans/) are a financial solution for businesses, particularly useful for start-ups and commercial property investors. A caveat loan is a fast funding loan that is secured against a property. I
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A Bizcap provides both Unsecured and Secured loans to Small Business Owners. When assessing a loan application Bizcap generally doesn't take into consideration if a prospective customer has specific assets to provide as security. However:
(a) if the loan amount is above $30,000 (or any other figure which Bizcap determines from time to time), Bizcap will, under the loan agreement take a charge. For a corporate borrower and any corporate guarantor, the charge is over all of that entity's present and after-acquired property (that is. the security is not over specific assets but any and all assets which the entity may have). For a sole trader borrower and any individual guarantor, the charge is over its current and future real property; and
(b) in certain instances, for example, where the loan relative to the cash flow of the borrower is of a size that warrants the provision of security over specific assets. Bizcap may require specific security to be granted over those assets. Bizcop may register its security interest(s) under relevant legislation, including the Personal Properties Securities Register and the register held under the Real Property Act 1900 (NSW) or Its equivalent.
I n addition. Bizcap may take personal guarantees from directors of corporate borrowers, directors of corporate guarantors and certain individuals. No registrations are made in respect of guarantees.
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