The Reserve Bank of Australia’s decision to cut the cash rate for the third time this year is set to ignite the spring property market, but experts warn it’s bad news for those trying to break into the housing market.
The cut, which brings the cash rate down to 3.60 per cent, is expected to unleash a wave of buyer activity, driving up competition and potentially pushing prices even higher.
New data already reveals a surge in home loan pre-approvals, indicating buyers were betting on a rate cut and are now poised to flood the market.
Loan Market reported a massive 53 per cent jump in pre-approvals during July compared to last year, as buyers scramble to secure finance amid dwindling housing stock.
Across the states, SA and the NT are leading the charge with pre-approvals up 80 per cent.
In WA, pre-approvals are up 79 per cent and 49 per cent in NSW and the ACT.
Queensland records pre-approval rates of 48 per cent, while 46 per cent of homeowners in VIC and TAS are ahead of the game.
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Loan Market chief executive David McQueen.
This spike in pre-approvals comes amid already tight stock levels. Ray White data shows new listings are down 14.2 per cent compared to this time last year, adding further pressure to an already competitive market.
David McQueen, CEO of Loan Market, said buyers are looking for every advantage they can get.
“Market listings are sitting at a three-year low, which is making it tough for buyers,” he said.
“They’re looking for every edge and that starts with knowing exactly what they can borrow and afford to repay. Buyers want to walk into an auction with confidence or put forward strong private treaty terms that help them stand out.”
Experts weigh in
In this month’s Finder RBA Cash Rate Survey, almost all experts (91 per cent) correctly predicted the RBA’s move.
Graham Cooke, head of consumer research at Finder, said all eyes are now on the banks to pass on the savings to customers. “Following recent rate cuts by the Reserve Bank of Australia, lenders are under immense pressure to pass the savings on to customers. So far, most have passed on the cuts in full.”
Cooke also cautioned that lenders might start to pull back on the size of future rate cuts as more are predicted.
He urged homeowners to review their home loans, stating, “If your current mortgage rate is higher than 5.5 per cent, you may be able to find a better deal.”
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Reserve Bank Governor Michele Bullock addresses the media in Sydney. Picture: Christian Gilles / NewsWire
Affordability boost
Finder analysis reveals the suburbs where house and unit values are now affordable following the three rate cuts.
The average single Australian can now feasibly afford a place for $570,000 or less, and the average Australian household with two incomes can look at suburbs where average prices are under $1,167,000.
Following the rate cuts, the median house in Wyndham Vale and Wodonga in Victoria is now affordable for the average Australian. For a couple with two average incomes, a house in Coburg is now affordable in Victoria.
In New South Wales, a couple with two average incomes can now afford a house in Oran Park, Marsden Park, Glenmore Park, and Leppington.
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Following three rate cuts from the RBA, the average Aussie on a single income can now afford a house in Kirwan in Queensland. The average Aussie on a single income in Western Australia can now afford a house in suburbs including Armadale and Mandurah.
When it comes to units, the average Australian on a single income can now afford suburbs in Bankstown, Penrith, and Auburn in New South Wales, and South Yarra and Brunswick in Victoria. Australian couples with two incomes can now afford a unit in suburbs including Chatswood, St Leonards, Pyrmont, and Maroubra in New South Wales, and Burleigh Heads in Queensland.Despite the increased affordability, Cooke warned that increased market activity could drive up prices and deposit requirements, potentially negating the benefits of cheaper repayments.
“Even with a lower rate, you’ll still need a hefty deposit. If lower borrowing costs drive increased market activity – as they have in the past – rising property prices and higher deposit requirements could ultimately outweigh the benefit of cheaper repayments.”
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