How to Manage Cost of Living Pressures

Finance Advice | 23 Nov, 2022

It’s no secret that the cost of living is high in Australia right now – and many of us are feeling the pinch. Whether it’s reconsidering a dinner out or making your daily latte at home, Australians are struggling with maintaining the same lifestyle they once had.

Home loan borrowers – and potential home loan borrowers – are feeling the pressures more than most. Rising interest rates mean that our borrowing capacity has lowered. And when we do borrow, it’s more expensive. For those of us who already have home loans, they’re more expensive to service than ever.

However, there are things we can do to help manage cost of living pressures – especially when it comes to our home loans.

What Is Cost of Living?

The definition of cost of living is simple. It’s the amount of money you need to live in a particular place in the current period. In other words, it’s a measure of how much money you need to buy essential items in order to go about your daily life.

Economists calculate the cost of living by assessing the cost of necessary items and how affordable they are considering average incomes. Needless to say, changes to the cost of living can have a huge impact on an individual’s personal finances – and, in fact, their lifestyle at large.

A recent community sentiment survey conducted by Beyond Blue found that cost of living pressures have overtaken COVID-19 as the main concern for people. In addition, the NAB Consumer Sentiment Survey Q2–2022 also found that consumer stress was up again due to the rising cost of living.

Living expenses typically include:

  • Rent/mortgage repayments
  • Bills
  • Insurance/s
  • Taxes
  • Groceries
  • Healthcare
  • Childcare/school fees
  • Clothing
  • Car and transport costs

What Drives the Cost of Living?

The cost of living varies across different regions – the median rent changes from a capital city to a regional town, for example. In also changes across time periods due to inflation or the rising costs of goods from supply and demand issues. While there are many factors that can drive cost of living increases, the end result is that as Australians we can buy less with our money. And it becomes more expensive to live our daily lives.

Cost of Living in Australia Today

Right now, across most parts of Australia in 2022, the cost of living is rising. Which means the cost of living pressures are mounting.

There are many factors that play into our current economic environment. Impacts from COVID-19 are still being felt, in particular supply disruptions and shortages of products. Political upheaval in Europe has added to our supply woes, as has strong consumer demand here in Australia. These elements work together to put upward pressure on our economy, and we’ve begun to experience a record level of inflation.  

Inflation itself means that our dollars don’t go as far. We can buy less with what we have, which is, in itself, a cost of living pressure. However, the pressures don’t stop there. In order to combat inflation, the RBA has begun to increase the cash rate.  

While there are many nuances about how an increase in the cash rate combats runaway inflation, the end result is that it has a stabilising effect on the economy. And while that’s a good thing, it does mean that home loan borrowers are struggling under higher interest rates on their mortgages.

How to Beat Cost of Living Pressures: Refinancing

Home loans typically chew up the biggest portion of one’s income. So one major way to help combat cost of living pressures is by reducing your home loan through refinancing.

Borrowers often become apathetic when it comes to home loans. Once their mortgage is in place, they don’t often feel a need to think about or look at it again. Maybe they don’t quite understand the industry and feel too overwhelmed to dive deeper, or maybe they fear making the wrong decision.

But if you haven’t refinanced within the last two years, you could be paying more than you need to. In fact, there’s a lot of money being left on the table right now when it comes to home loans. Some of our clients at Stapleton Finance are leaving a full 1% on the table – with the norm being around the 0.7% mark, particularly for those coming off fixed rates.

For example, if you have a $550,000 loan at 5.59%, you’re paying $2,562 per month. But if you can get that down to 4.59% (and there are lenders at this interest rate), then you come down to $2,103 per month – which saves you nearly $40 per week or about $180 per month.

Example: ANZ Pre-Approval

You’ve found a beautiful home and have obtained a pre-approval from your regular bank – ANZ. However, in the two months since you got your pre-approval, rates have gone up by 0.5%. Now the amount you can borrow is reduced by 3–5%. And because that new amount is outside the pre-approval by ANZ – and the max they will let you borrow –you feel that you can no longer afford the home that you were planning on purchasing.

However, you don’t have to feel that ANZ is your only option. With a different lender you might still be able to afford your dream home. That’s because not every lender is the same. Every lender has different borrowing capacity assessments and limits, offer different interest rates and take into account different factors to determine whether or not you’re a good risk.

It really pays for people looking to buy to deal with a broker. If you just go to ‘your bank’ there’s a strong chance you won’t get the best deal. However, our Stapleton Finance team has access to over 50 lenders, and can find the most competitive financing options. This means that you may be able to increase your borrowing capacity and help cover the impact of rising rates.

Don’t give up without investigating.

Other Ways to Beat Cost of Living Pressures

image of spaghetti bolognese for how to manage cost of living pressures by eating at home

  • Consider switching to solar. It can save you money on your power bill and help the environment.
  • Take a closer look at your major bills (e.g., electricity, health insurance, car insurance) and see where you might be able to save money by changing providers.
  • Opt to use public transport or walk/ride more instead of driving. Not only will you save on car maintenance and petrol expenses, but you’ll also enjoy more physical exercise and provide benefits to the environment.
  • Talk to an expert.The team at Stapleton Finance can help you ease your cost of living pressures by providing a home loan health check. We’ll review your home loan to make sure you’re getting the best rate, and help you find a better lender or loan product if not.

Interested in refinancing? Our team of experienced Brisbane mortgage brokers can take a closer look at your current mortgage and your individual circumstances to see whether refinancing is the right move for you. Get in touch today.

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