The Reserve Bank of Australia (RBA) has lifted rates considerably over the last year in its ongoing bid to cool rising inflation.
Many homeowners will be feeling the pinch of higher repayments as they service their loans. There has been a lot of talk around what the rising cash rate and ensuing mortgage interest rates means for people who already have a loan, but what about those who are wanting to enter the property market?
Rising interest rates means a lower borrowing capacity (the amount a lender is willing to lend you) and the turbulent property market may seem a deterrent for some. However, the experts at Homeward Finance believe there are a number of reasons why this could actually be a good opportunity for first-home buyers to enter the property market.
1. Lower property prices
If you’re considering buying property, you’ve probably seen the widely reported news that property prices experienced a drop in many areas around the country. While they are beginning to lift again now, they are still not back at their peak heights from last year.
While this is not great news for homeowners, it can be a great opportunity for people wanting to get into the market. It means homes may be more affordable than they were a year ago. It also means we are potentially experiencing more of a buyers’ market compared to last year’s seller’s market.
2. Increasing rents
If you’ve looked for property to rent recently, you would know competition is high, the prices are up and other applicants are offering anything from higher rent to months upfront in a bid to secure a property. According to a recent report by Domain, Australians are experiencing the longest period of rental price growth on record.
When you purchase your own home, you become your own landlord. Variable rates for home loans are likely to increase and decrease over time, however rents on properties tend to continue to trend upward. Buying your home to live in helps you to get out of the rising-rate environment.
3. Projected flattening of interest rates
The cash rate has increased steadily over the last year, and with it interest rates on home loans. The RBA has said it is open-minded about how many future rate increases it will make, however economists at the big four banks have made predictions on when it will peak. They all predict we are currently at or near its peak.
There are two potential pros for this for people looking to purchase property. Firstly, if we hit the peak in 2023, they are unlikely to experience the same turbulence homeowners experienced through 2022 with the rapidly rising rates.
Secondly, the stress test applied to loan applications (where lenders test if you could afford to pay your loan if the rate was 3% higher than it is on the day you apply) means you should remain within your “comfort” range on repayments if economic factors are brought into control as projected.
4. Higher savings rates
The flip side of the rising cash rate is that the interest rate on savings accounts usually also increases. This is good news for people saving a deposit to purchase property. While we were experiencing the lowest cash rate on record, savers took a big hit where their savings were receiving very little if any interest.
Now savings accounts can have interest rates over 4% (if the bank’s specified conditions are met), helping give a boost to that deposit. This combined with the decreasing property prices can put buyers in a better position to get onto the ladder.
If you’re planning on buying property, a broker can help get you on track. We can help you get your finances in order and help you understand your borrowing power so you can bid with confidence.
For more information, and to get your first home, head to Homeward Finance here. Alternatively, you can like them on Facebook or text 0483909340 for more information.
The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances. Terms, conditions, fees and charges may apply. Normal lending criteria apply. Rates subject to change. Approved applicants only.
Homeward Finance Pty Ltd ACN 641670519 is authorised under LMG Broker Services Pty Ltd ACN 632 405 504 Australian Credit Licence 517192
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