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Interest rate cuts change the market

clock icon July 4, 2019
tag iconHome Buyer Home Loans Sydney Property

The property market has seen a lot of change in the past month. We learnt first home buyers might get a new loan help scheme, the Reserve Bank (RBA) made back-to-back cuts to the cash rate, and APRA put out a proposal for a relaxation of regulations on credit assessment.

With all this going on, housing sentiment seems to be a tad more positive this month.

Post-election and the market is up

After the election, the auction market saw improving clearance rates, and monthly declines in house prices eased significantly, with CoreLogic in June reporting national dwelling values down by only 0.4%. The smallest month-to-month decline recorded since this time last year.

Just the other day, CoreLogic reported Sydney and Melbourne property prices increased for the first time since 2017. The uptick is most likely a result of people jumping in after sitting on the fence for the last few months. First-hand, we’ve seen a spike in applications in the past month or so, reinforcing this idea. This all suggests the downturn is stagnating, albeit slowly.

Source: CoreLogic

Something for first home buyers

The government announced their proposal for a new First Home Loan Deposit Scheme which would allow first home buyers to get a home loan with a deposit as low as 5%. Rather than save for the typical 20% (to avoid Lenders Mortgage Insurance), the government will essentially guarantee the other 15%. Expect more details soon, as the scheme is predicted to start in January 2020 if legislated.

For buyers, things are looking better across the board. Mortgage rates are cheap and housing affordability is up. This is great news for people who’ve been waiting.

If you are a first home buyer, you may want to check out our courses. We’ve been running them since 2003, and they are seriously helpful if you are just starting out.

Reserve Bank cuts interest rates twice

The RBA has decided to once again reduce the official cash rate for July to 1%. This comes a month after we had our first rate cut in almost three years from 1.5 to 1.25%.

So why the double rate cut after years of nothing?

The decision to reduce the cash rate is a result of slower than expected trends in the economy. RBA governor Philip Lowe has highlighted that while the Australian economy ‘remains reasonable’, some factors remain below-trend. Inflation and wage growth have continued to remain stagnant and under desired targets, and there remains uncertainty in global trade. However, the additional cut to the cash rate is no surprise.

Last month, Lowe mentioned ‘it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead”. With the new decision, the RBA hopes the second cut ‘will help make further inroads into the spare capacity in the economy’. We expect to see one more rate cut before years end.

Borrowing rates are at historical lows

Thanks to the rate cuts, many lenders have passed a significant portion of the benefit to customers. This is great news for borrowers and anyone looking to refinance a home loan. While some lenders passed on the full rate last month, others are passing it on this time instead.

If you are on a variable home loan interest rate, expect the bank to pass on their reduction. You won’t need to do anything about this. In fact, we’ve been going around calling up for our clients to check just to make sure things are in order.

Major bank principal and interest standard variable rates

BankJune rateJuneJuly RateNew rateEffective from
NAB -0.25% 5.11% -0.19% 4.92% 12/7/2019
ANZ -0.18% 5.18% -0.25% 4.93% 12/7/2019
Westpac -0.20% 5.18% -0.20% 4.98% 16/7/2019
CBA -0.25% 5.12% -0.19% 4.93% 23/7/2019

Scott Durrant, our principal, suggests it’s also a great time for borrowers to reduce their debt.

“With two rate cuts, many lenders are passing on a significant benefit to customers. I would recommend for any borrower to use this as an opportunity to pay off some extra debt by continuing their current level of repayments.”

Since the cut, some banks are offering a better deal than others. If you are not getting the best deal possible, you may want to consider moving lenders and the savings you will receive could really make a huge difference on your budget. If they have your business, they should be looking after you. We are actively looking after clients right now to get better deals.

“For now, rates are at record lows. It’s a great time for Australians to pay off their mortgage quicker and improve their financial future.”

If you’d like a better deal with little to no effort, contact a mortgage broker.

APRA is relaxing lending regulations

In the past month, APRA proposed a slight relaxation of policy, suggesting borrowers only be tested at their mortgage rate plus a 2.5% buffer.

Update as of July 5th 2019: APRA has finalised changes to guidance on residential mortgage lending. Lenders are no longer required to assess home loan applications using a minimum interest rate floor of 7%. From now on, there is no minimum rate floor. Serviceability tests only require a buffer rate of at least 2.5%.

If you want to know how the new guidelines are changing how much you can borrow, read out complete overview of the new assessment rate.

Getting approval will still be tough

It makes sense when you think about it. There needs to be a buffer to account for any unexpected changes that could impact the borrower and/or the lender.

However, the 7% servicing rate is no longer practical with the record low rates we’ve got. This change change could seriously boost the amount people can borrow in the tens of thousands of dollars. Unfortunately, don’t expect lenders to be any more relaxed when scrutinising over expenses and credit history. 

Ultimately, it will come down to each lender to decide how permissible they will be. For now, you might want to read what our expert loan assessors have said about getting home loan approval.

Are you ready to borrow?

If you’re a first home buyer looking to buy, or someone in need of a refinance, the current conditions look good. Housing prices are bottoming out, and cheaper rates mean reduced interest repayments.

We at Successful Ways are always happy to give a free assessment of your situation, and help you work out what is the right thing to do. If you’re interested, contact us today.

Either way, we wish you good luck!

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