The Australian property market is shifting. Here is what the year ahead holds for home loan borrowers.
The past year brought dramatic change to the Australian property market. The RBA cash rate climbed from a historic low of 0.1% to 3.10% in just twelve months. Inflation hit a 32-year high. Property values fell sharply in many cities, wiping out gains built up during the pandemic.
If you are planning to buy a home or refinance in 2023, understanding these six home loan trends will help you prepare for the year ahead.
The cash rate
The RBA is expected to keep lifting rates through early 2023. Major lenders including Westpac and ANZ have forecast the cash rate could reach as high as 3.8%. Most economists expect rates to peak sometime in 2023 or 2024, with some predicting cuts could begin by late 2023 or early 2024.
The exact timing remains uncertain. What is clear is that any borrower on a variable rate will likely face further repayment increases in the months ahead. Use our loan repayment calculator to see how a rate change affects your monthly costs.
Borrowing power
Your borrowing power is likely to be lower in 2023 than it was in 2022. Banks assess your ability to repay using a serviceability buffer. With advertised rates sitting around 5%, lenders are stress-testing borrowers at roughly 8%. That is 3% above the actual rate.
For first home buyers, stretching the budget will be harder than it was during the low-rate years. You may need to adjust your target price or consider a more affordable suburb. Check the borrowing power calculator to get a realistic estimate of what you can borrow.
Fixed-rate cliff
Many Australian homeowners locked in fixed rates during the pandemic when the cash rate sat at 0.1%. Most of those loans were fixed for two years at rates as low as 1.95%. A large number of those fixed terms are set to expire between April and December 2023.
When these borrowers revert to variable rates of around 5% to 6%, the repayment jump can be significant. In Sydney, some borrowers could face a monthly increase of up to $2,000. Even in more affordable states, the increase could be $500 to $600 per month. If your fixed term is ending soon, speak with a broker well ahead of time to explore your refinancing options.
Jobs and employment
Employment stability has a direct impact on your ability to qualify for a home loan. The RBA forecast unemployment would stay around 3.5% until mid-2023 before rising to about 4.25% by the end of 2024. Some economists expected unemployment to reach 4.5% by the close of 2023.
If you are planning to buy, have a frank conversation with your employer about your role security over the next few years. Lenders look closely at income stability, and any employment uncertainty will affect how they assess your application.
Migration and rents
With Australia’s borders fully open again, 2023 is expected to bring a large wave of overseas arrivals including international students and skilled workers. This added demand will put further pressure on an already stretched rental market in the major cities.
For property investors, rising rents improve your gross yield and can make a purchase more financially attractive. For renters considering buying, a sharp rent increase can make ownership look compelling sooner rather than later.
Property prices
Sydney and Melbourne are expected to see further price falls in 2023, driven by ongoing rate rises. The pace of decline was slowing toward the end of 2022, and cities like Brisbane and Adelaide were showing signs of approaching their floor. Further rate increases could push prices lower again.
Each city will reach its low point at a different time. Watching local sales volumes, clearance rates, and days on market in your target suburb will give you a clearer read on where prices are heading. For more context on how the RBA rate cycle feeds into home loan costs, see our rate forecast guide.
Common questions
Q: Should I fix or go variable in 2023?
With rates still rising, fixing part of your loan can provide some certainty. However, fixed rates offered by lenders already reflect expected future rises, so you may not save by locking in. A split loan, part fixed and part variable, is worth exploring. Speak with a broker to work through the numbers for your situation.
Q: What happens when my fixed rate expires?
When your fixed term ends, your loan automatically reverts to your lender’s standard variable rate. This rate is often higher than what you could get by refinancing. Start comparing options two to three months before your term ends so you have time to act.
Q: Will property prices keep falling in 2023?
Most forecasters expected further falls in Sydney and Melbourne, while some other cities were already stabilising. The direction and size of any falls will depend heavily on how far the RBA pushes the cash rate. Watch your local market closely rather than relying on national headlines.