Buyers benefit from favourable borrowing terms as market recovery begins
Data released by the Australian Bureau of Statistics (ABS) last week points to additional evidence Australia's housing market is showing further signs of recovery, thanks to a surge in the number of people who are borrowing.
The ABC reported the value of new loans issued to households jumped 3.9 per cent to $32 billion in July, its sharpest increase in four-and-a-half years, according to the ABS’s latest data.
CoreLogic's research director Tim Lawless said this rise in borrowing activity coincides with rebound in property prices and auction clearance rates driven by buyer demand and confidence as people took advantage of the RBA's recent interest rate cuts and the Morrison government's personal income tax reductions.
"While the recovery trend is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities," he said.
Before June this year, the Reserve Bank hadn’t moved on rates since 2016. In the last month of the financial year, the central bank dropped the cash rate from 1.5 per cent to a historic new low of 1.25 per cent. before following up in July with another cut, taking the cash rate to one per cent. We’re now back in rate territory we haven’t experienced since the 1950s! If that wasn’t enough, global investment firm Deutsche Bank this week announced that “it expects the cash rate to drop to just a quarter of a percentage point by as early as the end of this year”.
So what does this mean for borrowers and home-owners?
Queensland Investment Corporation's (QIC) Beverley Morris believes "certainly from the household perspective the expectation should be that interest rates are going to stay low for a persistent period of time." and that reassurance is something Australian borrowers have never experienced before. "It really is now telling people you do not have to worry about rates going up in the foreseeable future," she said.
In July, the big four banks rates were around 4.9 per cent. Today some of the sharpest available rates are around three percent, albeit mostly from smaller lenders. The general consensus within the industry, and backed by Ms Morris, seems to be that "banks are themselves expecting that the cash rate is more likely to be going lower over the next three to five years, than higher”.
As a result, we’re enjoying greater competition over rates, so if you have a loan that is a few years old, it may be prudent to consider refinancing it - undoubtedly a smart move in this environment.
The property market also has the central regulator - APRA - to thank for more momentum. It’s amendment to how banks assess a borrower's ability to repay their loan on interest rates is allowing people to borrow more - up to $66,000 more for the average-wage borrower!
Despite record low interest rates and APRA’s recent regulatory changes, buyers are struggling to get finance as the length of the process, increased complexity and documentation required, and stricter borrowing requirements introduced by the banks, prove difficult to handle on their own.
But all is not lost - In its most recent Statement on Monetary Policy (3 Sept), Governor of the RBA Phillip Lowe, noted “mortgage rates are at record lows and there is strong competition for borrowers of high credit quality”.
If you’re keen to buy this spring, I can help you prepare to give you a better chance with the banks. And with 57 lenders to choose from - I'll negotiate hard with the banks and keep the process simple for you so you can be at your most competitive when it comes time to bid.