Following today’s board meeting, the Reserve Bank of Australia (RBA) has decided to keep the cash rate on hold at 3.85%. This follows two cash rate cuts earlier this year and it was hotly debated whether there would be another cut this month.
The previous cash rate cuts boosted morale among homebuyers, with our data showing a 53% year-on-year increase in pre-approval numbers. This could be due to boosted borrowing capacities giving buyers confidence the interest rates are on a downward trajectory.
How do cash rate cuts impact my borrowing capacity?
When there is a cash rate cut, usually lenders pass at least part of that cut through to their loan interest rates. Lower interest rates usually mean the same customer could borrow more money as their repayments would be lower.
For example, someone earning an annual income of $120,000 would have seen their borrowing capacity increase by around $27,000 following the previous two cuts. This additional cut could see their borrowing capacity increase by around $42,000.
As buyers find themselves able to access more money, a challenge they are facing is a decrease in properties listed for sale.
What is happening in the property market?
According to Ray White data, new property listings in May were down by 11.8% compared to May last year.
Ray White also found house prices nationally increased by 5.2% on average over the year. In fact, the average house price across capital cities is now over $1.1 million.
Perth, Brisbane and Adelaide led the growth among major cities, increasing house prices by 10.8%, 7.2% and 7.1% respectively. Regional areas in WA, SA and QLD experienced growth of 11.5%, 10% and 8.5%.
In other words, the market is competitive and with buyers likely to be able to borrow more and limited new listings, it is likely to remain that way. If you are considering buying, it is a good idea to consider entering the market sooner rather than waiting for more cash rate cuts.
Your Loan Market broker can have a look at your circumstances to help you devise a plan to get into the property market or buy your next property. This includes comparing over 60 lenders to find the right loan for your goals. Find a broker near you.
