How much to save if inflation rises

A Sydney real estate expert tells Aussies to really watch where their money is going and cut back on interest rate hikes and rising inflation.

The average Australian will have to save an extra $300 to $400 a month amid interest rate hikes and rising inflation, warns a real estate expert.

Lloyd Edge, founder and director of Aus Property Professionals, said most people should “tighten their belts” when it comes to spending in the coming months.

“People should keep in mind that they should probably find $300 to $400 elsewhere,” he said.

“What I would strongly recommend is that people have a budget and really look at where their money is going.”

Mr Edge’s advice was to look at small costs that add up, such as subscriptions and takeaway meals and drinks.

He explained that when people get a loan, the bank already allows the person to pay higher interest rates.

Therefore, he believed that many people should look at their spending habits.

“Banks generally have a three percent rating over what they actually lend,” he said.

“So if you have a rate from the bank that is, for example, three percent, the banks are actually assessing you on whether you can reduce the payments to six percent.

“It basically means that as long as you haven’t lied on your application forms or anything like that, the banks judge that you can actually pay higher interest rates.

“The banks have built in a buffer.”

Interest rates

On Tuesday, the Reserve Bank of Australia announced the: official spot rate would rise a whopping 50 basis points to 0.85 percent — the largest increase in a generation.

The major banks passed on the full increase within a few days.

According to Rate City, the average borrower with a debt of $500,000 and 25 years would increase by $133 a month. That would be an increase of $197 from April, before the first cash rate hike in June.

Someone who owes $1 million would increase their mortgage payments by $265 a month. In total, their refunds are said to have increased by $394 since April.

“While the increase in monthly repayments has been relatively moderate this month, homeowners should prepare for significant increases in the coming months,” said Sally Tindall, Rate City’s research director.

“These rate hikes will not magically cure Australia’s inflation problems. The RBA will need to rise again, possibly as early as next month, and from there they could keep rising thick and fast to get inflation under control.

“(RBA) Governor (Philip) Lowe has indicated that the neutral cash rate could be around 2.5 percent.

“If we get there by Christmas next year, the average borrower with $500,000 in debt could see their repayments increase by $652.”

Some experts predict that interest rates could rise to 2.5 percent much sooner.

Ms Tindall said that just because rates were rising didn’t mean it was a bad time to refinance.

“If you live in the house you own with a steady job and a good track record of paying off your debts, you should still be in the driver’s seat when it comes to rates, if you’re willing to refinance or run out of debt. least negotiate with your current lender,” she said.

Mr Edge shared the same view.

“Your bank charges the full interest rate rise, but that does not mean that you simply have to accept it. You can go to the bank and see if you can negotiate,” he said.

“Even if it drops just a few basis points, that’s better than nothing.”

Mr Edge recommended hiring a mortgage broker.

“You don’t have to stay with the same bank,” he said.

“Mortgage brokers usually have access to 30 to 40 lenders and find the best lenders for the client’s situation, which is much easier than going to each bank individually and trying to talk to them about interest rates.”

‘Not all doom and gloom’

Mr Edge wants people to know it’s not all doom and gloom, but he understands it would come as a shock to new buyers who borrowed at historically low interest rates in recent years.

He also pointed to the “problem” that the Reserve Bank of Australia previously claimed that interest rates would not rise until 2024.

“When I first started investing I was paying 9 percent and in the early 90s it was 18 percent interest, so I guess there’s still nothing to worry about where we are now,” he said.

“It will probably calm the market down a bit and there may be some options for people to get in the market and maybe find a deal because buyers tend to wait a bit at this point.”

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