How much you need to save as inflation soars

A Sydney property expert is telling Australians to really watch where their money is going and cut spending amid rate hikes and soaring inflation.

The average Australian will have to save an extra $300-400 a month due to rising interest rates and soaring inflation, a property expert warns.

Lloyd Edge, founder and director of Aus Property Professionals, said most people will be “tightening their belts” over the next few months when it comes to spending.

“People have to consider that they’re probably going to have to find an extra $300 to $400 somewhere,” he said.

“What I would strongly recommend is for people to have a budget and really watch where their money is going.”

Mr Edge’s advice was to look at the small costs that add up, like subscriptions and takeaway food and drink.

He explained that when people receive a loan, the bank is already ensuring that the person can afford higher interest rates.

Therefore, he believed that many people needed to rethink their spending habits.

“Banks typically have the valuation rate at three percent above what they actually lend,” he said.

“So if you have a rate from the bank which is three per cent for example, the banks are actually assessing you if you can make the payments at six per cent.

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

“Banks have a built-in buffer.”

Interest rate

On Tuesday, the Reserve Bank of Australia announced the the official exchange rate would increase a whopping 50 basis points to 0.85% – the biggest rise in a generation.

The major banks passed on the full hike within days.

According to Rate City, the average borrower with $500,000 debt and 25 years remaining would see their repayments increase by $133 per month. That would be up $197 from April, before the first spot rate hike in June.

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

“While the rise in monthly repayments this month is relatively modest, homeowners should be prepared for significant increases in the months ahead,” said Sally Tindall, research director at Rate City.

“These rate hikes are not going to magically cure Australia’s inflation problems. The RBA will need to rise again, potentially as early as next month and from there it could continue to multiply rapidly to bring inflation under control.

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

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

Some experts predict that the interest rate could rise to 2.5% much sooner.

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

“If you’re living in the home you own with a steady job and a good history of paying off your debts, you should still be in control when it comes to rates, whether you’re willing to refinance or at least haggle with your current lender,” she said.

Mr. Edge shared the same view.

“Your bank will pass on the entire interest rate hike, but that doesn’t mean you just have to accept it. You can go to the bank and see if you can negotiate,” he said.

“Even if it’s only down a few basis points, it’s better than nothing.”

Mr. Edge recommended using a mortgage broker.

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

“Mortgage brokers typically have access to 30-40 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 them into interest rates. .”

‘Not all catastrophic’

Mr Edge wants people to know that all is not gloomy, but understands it would come as a shock to first-time buyers who have borrowed at historically low interest rates over the past two years.

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

“When I started investing I was paying 9% and in the early 90s interest rates were 18% so I think there is still no need to worry about the situation current,” he said.

“It’s probably going to calm the market down a bit and there could be options for people to come into the market and maybe find a deal because buyers tend to be a bit of a wait at the moment.”

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