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The Experts

Buying just got easier

John McGrath
Tuesday, June 18, 2019

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Buyers in Sydney and Melbourne have enjoyed almost two years of falling prices and many have been waiting until they see a floor in the market.

Over the last two weeks, a strong signal that the market has bottomed has appeared after the election result, which coincided with credit easing and talk of two rate reductions. And buyers have marched straight back into the market as a result.

The latest CoreLogic report reveals a continued easing in the rate of decline in both cities, with the market trough now expected sooner rather than later. Home values fell -0.5% in Sydney and -0.3% in Melbourne in May, which was the smallest decline in both cities since March 2018.

So, one or two rate cuts will provide further incentive for buyers to re-enter the market and give them confidence that the bottom has been reached.

I can’t emphasise enough the phenomenal opportunity today’s record low cash rate presents, not just for buyers but importantly, also for home owners and investors with debt.

We’ve never seen the cash rate this low. Compare today’s cash rate of 1.25% with that of June 2008 when it was 7.25%!  And remember that was the cash rate, not mortgage rates, which are always higher than the official rate.

Your mortgage will always be your single biggest debt and the lower rates go, the easier it becomes to pay some of it down.

Here’s the other big impact of the recently lowered cash rate (which is expected to go another 25 basis points lower very soon, by the way)…

APRA has recently told the banks that instead of using the 7-7.25% benchmark for serviceability assessments, they can now use a 2.5% buffer on top of their advertised mortgage rates instead. That means every cash rate cut should enable more loan approvals. 

This change hasn’t taken effect yet, with APRA still talking to the banks about how this will work. Probably around late June, APRA will formally announce how these changes will be implemented. So, stand by buyers, financing for your next purchase is about to get a little easier.

Some people might have noticed that many banks cut fixed loan rates in the week or so before the RBA cut.  

Continued speculation of a further RBA cut in August will assist in the Sydney and Melbourne markets re-gaining momentum this Winter.

This is an excellent time for borrowers to do a home loan health check, with the possibility of switching to a better deal after August.

Rates cuts of 0.25% sound small but they equate to thousands of dollars in savings for borrowers, particularly in the more expensive markets of Sydney and Melbourne where loans are higher.

Published: Tuesday, June 18, 2019

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