Big changes ahead could land you an extra $63,000
An extra $27,000 for singles and $63,000 for couples is what lies ahead in major changes backed by Australia’s Big Four banks, but experts warn there could be a sting in the tail.
Latest research by Canstar found that someone on an average income of $98,218 would see a $27,000 boost in their borrowing power off three 0.25 percentage point rate cuts that the Big Four banks predict are coming.
The jump would permit that single buyer to borrow up to $419,000 compared to $392,000 currently, while for a couple the $63,000 difference means being able to borrow $969,000 after rate cuts compared to $906,000 now.
MORE: ‘Quite insane’: How much you need to buy in Qld suburbs
Green light for hundreds of apartments in hot river site
Land sells out in a week 8km from proposed Olympic stadium
Three rate cuts would push up borrowing power by $63,000 for couples with six adding a whopping $134,000 to their home loan potential.
The gains could climb even higher if the prediction of another major bank of six interest rate cuts ahead comes to pass. This after the Reserve Bank reignited discussions around the trajectory of interest rates in its March monetary policy meeting minutes, released Tuesday.
Canstar said if there ended up being six rate cuts by the end of 2025, singles could see their borrowing power jump by almost $60,000 and couples by $134,000 pushing them back into million-dollar purchasing territory.
Canstar finance expert Steve Mickenbecker said it can be appealing to wait it out for the rate cuts to fall into place over the next 20 months, but he warned buyers needed to balance that with potential property price surges.
“First home buyers don’t have the luxury of waiting as fear of missing out takes hold and they grapple with weighing up the borrower power recovery against rising home prices,” he said. “Competing with investors who are piling into the market in anticipation of higher prices will be tough for first home buyers.”
Canstar’s Steve Mickenbecker said homebuyers needed to know all the options and balance out potential price surges with the borrowing gains.
He said “new buyers should look into all the options available to them to get a foothold. It can make a difference to put savings into a high interest account, maybe even the government’s First Home Super Saver Scheme and investigate stamp duty exemptions, grants and shared equity options”.
“Anyone looking to buy will also need to be selective about their loan choice. It’s about getting the lowest rate offer to maximise their borrowing capacity. Whether looking to buy for the first time, upgrade or just hoping for relief to the household budget stress, all borrowers will be eagerly anticipating rate cuts, and hoping for the six cuts at the upper end of the big banks’ expectations.”
Mr Mickenbecker said 13 interest rate increases had put home ownership on hold for many Aussie buyers and made things tougher for many more.
“Rate cuts will deliver a release from the holding pattern as buyers will be able to borrow more. High interest rates have raised repayments across the market, potentially hitting first home buyers the hardest with repayments becoming an even greater barrier than saving an adequate deposit was two years ago.”
High interest rates hit first home buyers hard with repayments becoming an even greater barrier than saving an adequate deposit was two years ago, Canstar said.
“Would-be upgraders have also been slowed down by repayment increases. There is little point in a homeowner embarking on an upgrade if their reduced loan size will only get them into a house that is marginally ahead of where they are now.”
“The latest ABS new home lending statistics through to the end of January show that growth in lending to upgraders is way behind that for investors and first home buyers. Many upgraders will wait until rate cuts improve affordability before they make their next move in the market.”
Australia’s four biggest banks – CBA, NAB, Westpac and ANZ – all forecast at least three 0.25 percentage point cash rate cuts by the end of 2025, with one major bank predicting as many as six during that time.
The Canstar analysis was based on buyers on a 30-year loan with a variable interest rate of 6.27 per cent, which is the rate reported by the Reserve Bank for new owner occupier housing loans.
“For a couple with one partner working full-time and the other partner working half the time, the boost to borrowing power from three 0.25 percentage point rate cuts could be $45,000, taking their maximum loan size up to $$683,000. Similarly, a couple with both partners working full time could gain $63,000 in borrowing power taking their maximum loan size up to $969,000.”
See the latest PropTrack Home Price Index
The RBA board was told that aggregate demand continued to exceed supply in the latter part of 2023 but the gap was closing “relatively quickly”.
Canstar said if “the more optimistic forecast for six rate cuts of 0.25 percentage points each materialises then a solo borrower could see their borrowing power rise by $58,000, up to $450,000. For a couple with one full-time and one part-time income, the increase could amount to $95,000, reaching a total borrowing capacity of $733,000 and a dual-income couple might experience a boost of $134,000, raising their borrowing power to a decent $1,040,000.”
The minutes of the RBA Board’s monetary policy meeting in March – released Tuesday – said members discussed the gap between housing demand and supply.
“Members noted the staff’s overall assessment that aggregate demand had continued to exceed supply in the latter part of 2023, but that the gap between the two was closing relatively quickly, in line with prior forecasts.”
The RBA board also discussed high population growth and the fact that the shift in preference for more housing space during the pandemic was yet to unwind “despite worsening affordability”.
The RBA minutes said it was “not possible to either rule in or out future changes in the cash rate target”, but the board would “do what is necessary to return inflation to target”.