The Reserve Bank of Australia (RBA) has held the cash rate at 4.35% – the first hold this year. This helps provide some stability for mortgage repayments and borrowing capacity following three previous hikes.
If we just look at the impacts of the heightened cash rate, having increased 0.75 percentage points this year, the average homeowner could be currently paying around $335 more per month on mortgage repayments. People looking to purchase would have seen their borrowing capacity decrease this year. Someone earning $120k per year likely would have seen their capacity decrease by over $40k.
This likely contributed to the slow down in the property market in many areas for both price growth and time on market. However, the federal budget announcement in May had further impacts.
Investors
Investors have recently been impacted by the federal budget’s proposal to eliminate negative gearing for investors purchasing after 12 May and changes to capital gains tax. The biggest immediate impact that it had was on borrowing capacity. Previously, lenders factored potential negative gearing into their lending calculations to determine how much an investor could borrow. As more lenders move to remove that consideration, investors’ borrowing capacities are dropping by around 20%.
Since the budget announcement, Loan Market data shows a 27% decrease in investor loan applications. This could be the result of investors considering their strategy amidst the changes.
First-home buyers
The key impact on first-home buyers has been their borrowing capacity following the cash rate increases. Someone with an income of $120k could have seen their borrowing capacity for a 30-year term shift from around $644k to $601k (note these numbers can change depending on your circumstances and the lender).
Competition
According to Ray White data, open homes in May averaged 2.43 attendees – down from 4.32 in January. With fewer investors currently buying and fewer people inspecting properties, it could present an opportunity to get into the market. Whether looking to buy your first home, next home or investment, it is a good idea to speak to your Loan Market broker to understand your options.
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