[Interest Rate Hikes x Consumption Tax Cuts] A Thorough Explanation of the ‘Double Wave’ Threatening Home Loans and Small Businesses – Interview with an Exclusive Financial …

News about interest rate hikes by the Bank of Japan and planned consumption tax cuts is making headlines. “What happens to home loans when interest rates rise?” “If consumption tax goes down, won’t life and business become easier?” Many people might think so, butin reality, the combination of “rising interest rates” and “complex tax reduction measures”poses a major challenge to the cash flow of households and small businesses. In this article, we explain the true relationship between policy interest rates and home loans,and why tax cuts could potentially increase the risk of bankruptcy for small businesses,from the perspective of an Onuki exclusive Financial Planner and Management Consultant.We have organized this in an easy-to-understand way. 1. How will “home loans” react to the hike in policy interest rates?When the Bank of Japan raises the policy interest rate (the uncollateralized overnight call rate), the news reports that “short-term interest rates have risen.” A question many people have here is: “Aren’t home loans based on long-term interest rates?”Actually, the indicators linked to home loans vary completely depending on the interest rate type. ? Variable interest rate: Linked to short-term interest ratesThe “variable interest rate” currently chosen by the majority of home loan usersis primarily based on the bank’s short-term prime rate. Since the short-term prime rate is strongly influenced by the Bank of Japan’s policy interest rate (short-term interest rate), when the policy interest rate is raised, it creates upward pressure on repayment interest rates during periodic review timings. ? Fixed interest rate: Linked to long-term interest ratesOn the other hand, “Flat 35” and10-year fixed or full-term fixed interest ratesare linked to the yield on newly issued 10-year Japanese government bonds (long-term interest rates) traded in the market. Long-term interest rates fluctuate daily, incorporating “future price trends” and”future interest rate hike outlooks”as they move daily, soin phases where policy interest rate hikesor a monetary tightening stance continues,they tend to rise and remain high in advance. Summary of key pointsIt is not the case that “home loans = long-term interest rates,” andthe variable interest rate that the overwhelming majority have chosen is linked to “short-term interest rates.”The Bank of Japan’s interest rate hike directly impacts household repayment burdens. 2. The paradox where “bankruptcy risk” increases despite consumption tax cutsAnother major topic is the planned consumption tax cut on food and other items (such as a temporary reduction from 8% to 1%). While there is a positive aspect that “tax cuts = consumer-friendly,” it can be a matter of life and death in the business world, especially for small businesses and tax-exempt businesses (non-qualified invoice issuers).There are three reasons for this. ? Widening gap between “eating out (10%)” and “takeout/groceries (1%)”While food from supermarkets and takeout is tax-reduced, if dining in (eating out) remains unchanged, the tax rate difference will widen to 9 percentage points. Due to consumers’ thrift-oriented mindset,if “avoiding eating out and shifting to eating at home” progresses further,Sales at restaurants and similar businesses are at risk of falling significantly. ? The Barrier of Price Pass-ThroughWeighing on Small and Tax-Exempt BusinessesWith the invoice system becoming established, tax-exempt businesses (those that do not issue qualified invoices) are in a position where they are easily pressured by taxable business partners to lower prices to account for the input tax deduction. Furthermore, if the tax rate is lowered, the burden of renegotiating transaction prices and upgrading cash registers or accounting systems will arise.Small and sole proprietorships with no pricing power will see their gross margins squeezed,resulting in a decrease in disposable income. ? A Double Punch with ‘Increased Loan Interest Payments’Many business owners carry loans from financial institutions (direct loans or public institution loans). At a time when the burden of loan repayments (interest payments) is increasing due to the rise in policy interest rates, the combined impact of reduced sales due to tax cuts and the costs of system adjustments will hit simultaneously,making the risk of cash flow shortages (bankruptcy or business closure) for businesses with weak financial foundations a reality. 3. What We Should Watch Closely From Now OnHouseholds with home loans: Even if there is a 5-year rule or a 125% rule (a mechanism to suppress sudden increases in repayment amounts), there is a risk that the content of the payments will become ‘mostly interest,’ making it difficult to reduce the principal. Prior review of financial plans, such as simulations for early repayment or refinancing to fixed interest rates, is essential. Sole proprietors and small corporations: Beyond securing funds for system adjustments due to institutional changes, checking cash flow to ensure it can withstand rising interest rates is an urgent task. In this era of the return of interest-bearing worlds and tax system reforms, it is important to look beyond superficial news headlines and determine how it will affect your own household finances and businessand act early. ? A lumber store with an 86-year history fully supports the ‘financial defense’ of your household and business. 86 years in Tokai Village, Ibaraki Prefecture. We, Onuki Co., Ltd. (Design Wood), do not just build houses, but together with our exclusive team of Financial Planners and Management Consultants, we stand by our customers’ household and business financial plans. From how to structure home loans without being swayed by short-term interest rates to consultations on cash flow for small business store and office construction (CLT construction method, Re3:wood woodification), we provide advice from an objective standpoint. ? Why not anonymously ask a professional about your ‘household, business, or loan worries’? To answer the real questions about home loans that are hard to ask at showrooms or banks, and to address anxieties about rising interest rates, we have prepared an [Anonymous Question Box] on note. No name or contact information is required. We will not engage in any pushy sales tactics. Please feel free to share your voice with us? ? Click here to post to the anonymous ‘Question Box’ https://note.com/onuki1013/message? **Click here for our official website (construction achievements and tour reservations)** https://www.onuki-wood.com/?[Access/Location] Onuki Co., Ltd. (Design Wood) 3-11-14 Funaishikawa-ekinishi, Tokai-mura, Ibaraki Prefecture 319-1116 800m from JR Tokai Station https://share.google/URTgUihlJ9yFMdXBB#HomeLoan #VariableInterestRate #BankOfJapan #ConsumptionTax #SoleProprietor #Economy #CashFlow #OnukiCoLtd #DesignWood #FinancialPlanner