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Tribeca’s 2022 mid-year market update

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How you can prepare for the bumpy financial road ahead

Rising interest rates, escalating costs of living and an unstable property and share market. There’s no point sugar-coating it, it’s not the news anyone wanted to hear. But it’s the reality for households and families around Australia.

So what does all this mean for you and your financial wellbeing, and how can Tribeca help you ride out the bumpy road ahead?

In our mid-year market update we take a look at how these issues will impact budgets, mortgages and investments, and importantly, the strategies you can put in place to navigate these changes in the investment cycle.

“…strategies you can put in place to navigate theses changes in the investment cycle.”

Rising interest rates

One of the largest impacts of inflationary pressure is the jump in interest rates.

Since May this year, the Reserve Bank has increased its benchmark cash rate to 0.85%. That equates to adding about $130 a month on a loan worth $500K over 25 years. And there’s more rises expected over the next 12 months, with many forecasting the cash rate to reach 2.5% by mid to late next year.

While not unexpected (higher interest rates have been forecast for a while), it’s still a bit of a shock when it happens. Especially when this is the biggest rate hike in 22 years and the first back-to-back rate hike since May 2010.

Now, if you are saving for a home deposit, or perhaps you’re retired and keep rainy-day money in term deposits or savings accounts, then rising interest rates will help you get a better return on your money.

But, what does this mean if you have a mortgage

The first question we get asked is, “should I fix my rates?”. It’s important to stress that every person’s situation is different so there’s no blanket answer, as it will depend on a range of factors that may include the current structure of your loan, your plans for the property itself, your personal and household plans for the short to mid-term. It’s also important to understand whether the question of fixing is because you want to have more certainty in your household budget (a responsible and sensible approach) or are trying to out-guess the market (which is akin to trying to outsmart a casino)?   

What we do know is that most fixed rate deals (2-3 year terms) have already doubled in just six months, moving from less than 2% to over 4%, and are widely expected to continue to rise over the immediate future.

So, the apparent benefit of fixing has diminished, unless of course you hold greater weight in locking in your household budget (mortgage repayments) and are prepared to effectively pay a premium for that certainty. If you’re looking to fix now, your decision to act may come down to what is the difference between your current variable rate and the available fixed rates, and how long you think it will be before your fixed rate term will provide savings over the prevailing variable rate.

While fixing the rate can provide some budget certainty, if it’s only for a short-term (1-2 years) you will pay a significantly higher interest rate compared to keeping a variable rate.

For the longer-term (3-5 years) you run the risk of rates not moving as much as predicted or dropping sooner than expected. Further, a key risk to consider when fixing for longer terms is that if your circumstances change it may be very costly to break the fixed rate. Predicting interest rates is notoriously difficult as unexpected world factors (like the war in the Ukraine) can cause sudden changes in economic conditions.

The best piece of advice is if you’re concerned or have questions about your mortgage or loans, make an appointment with a lending expert who can discuss all your finance options. At Tribeca, our highly qualified and experienced lending team work closely with our financial advisors to create practical and effective solutions to suit your needs and goals.

Cost of living

If as predicted the cash rate hits 2.5% during 2023, this could see repayments on a $500K mortgage rise by $650 a month. That’s significant.

With the cost of living also rising, there’s never been a better time to take a fresh look at your household budget and see where you can save or trim.

But be realistic.

Don’t be one of the people who underestimate their household expenditure, as you’ll find your surplus cashflow will quickly disappear when meeting increases in mortgage repayments, energy costs, petrol, groceries, and other everyday items.

But there’s always areas you can save. A good financial advisor should be able to show you how to quickly create 10-20% savings in household cashflow. And that’s just based on tightening up on unconscious spending. At Tribeca, we can help you put in place plenty of strategies like this to free up that all important cash.

Another one is to review your rates and home loan package to check that you’re benefiting from the most competitive solution to meet your needs for your circumstances. To assist your budgeting we can also stress-test your mortgage repayment increases expected over the coming months. And then there’s reviewing other aspects like utilities and health, house and car insurances to potentially unlock thousands of dollars in savings.

To further help we have a number of handy tools and resources to manage your cashflow, such as our Tribeca Tracker app and Bill Comparisons Quick Link Guide. Remember, now is the time to lean on the advice and guidance of experts you can trust.

>  Learn more about how Tribeca can structure a financial plan for now and the years to come.

Unstable markets

There’s no doubting the significant uncertainty in the markets. We’ve seen property prices begin to flatten or fall in most areas, and the bond and share markets are suffering some big hits. And this is set to continue for the foreseeable future until inflation levels return to below 3% – the level the Reserve Bank is targeting by next year (this March Quarter rose to 5.1%).

So what can you do?

The first thing is not to panic. Yes, the months ahead will be challenging managing finances and investments. But these times have happened before, and they will pass. The important thing is to be prepared and have plans in place that provide comfort and security moving forward. That protect your financial wellbeing.

That means reaching out for expert help; not putting your head under the doona hoping everything will be OK. Take some positive action by talking to a financial advisor who can take you through all the scenarios open to you to shore up your finances as well as position you to take advantage of opportunities.

For many, that advice will be to do nothing, as the plans you already have in place will see you through this period and well into the future. For others it may mean readjusting some priorities depending on your tolerance to the volatility and your cash position. And as mentioned above, working hard to block up any areas of overspending or cashflow leakage.

Alternatively, there will be some who have a cashflow windfall like proceeds from a business sale or downsizing a property or an inheritance. If that is you, the coming year is likely to throw up some positive investment opportunities and now is the time to make a plan to act and take that advantage.

With all of this it simply requires you to be honest and realistic regarding your situation.

Remember to focus on the things you can control – your actions and your mindset. And know that you don’t have to navigate this time alone. That you have a tribe like Tribeca here with you every step of the way.

To help if you’re concerned with your financial situation. To shape or reshape your goals and strengthen your resolve to achieve them. To see you live your Good Life.

Please don’t hesitate to contact our Tribeca Tribe on 1300 388 285 if you would like more information on our services. Or you can book a free 15-min phone consultation to discuss any aspect of your financial wellbeing.

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