The latest rates forecast from one of the major banks (CBA) this week is that we can expect a further 1.25% of RBA interest rate rises over the next few months, bringing the target cash rate to 2.35%.
This represents a 2.25% increase and can potentially take a low-risk commercial borrower, or your average home loan, to a rate of about 4.5 to 5% – roughly doubling the interest bill in a ridiculously short period.
As if that wasn’t enough, another two compounding factors are coming very soon:
- Term Funding Facility – this was essentially a 3-year near-interest-free loan the RBA gave to the banks when COVID hit, which starts rolling off in March next year (three years already since COVID hit!), which the banks will have to replace from the wholesale market, thereby driving up their average cost of funds; and
- Ultra-cheap Fixed Rates that consumer and commercial borrowers took advantage of are starting to roll off now-ish, which will progressively bring more hip-pocket shock to the economy.
So there’s a good chance that in the next 9 to 12 months, most commercial and home loan borrowers will be footing double the interest bill (if not more) than they were at the start of this calendar year.
Then there’s global and local inflation at 40+ year records on top of that!
Sydney and Melbourne are already seeing residential property values on the slide. With commercial & industrial property, there is plenty of talk about what happens with non-residential properties that sold at 5% or less cap rates, when your borrowing cost is north of 5%.
So what happens next? There are a few smart people out there (who I think are worth listening to) who are saying all of this will probably cause an over-shoot of economic shock, thereby requiring interest rates to come back down in 2024.
We’re willing to put a bet on interest rates having to come back down sooner than that.
The question might be – what do you do now? Yes, this is a bit of a plug for us…
NOW is the time to be looking at your lending facilities.
Is there an opportunity to negotiate a lower rate?
Should you get your properties valued now, before you might have an LVR problem if the bank calls for revaluations 12 months from now?
Whether it’s a large commercial portfolio or your home loan, we can help you assess your best options.
Give us a call today.
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