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The interest rate cut that everyone is talking about- our experts weigh in
May 5, 2015
Greville Pabst: “Sowing the seed for a prosperous market”
The current interest rate environment creates appealing conditions for home buyers and investors who have proven increasingly active this year, particularly in east coast cities Sydney and Melbourne. This rate cut should further solidify confidence levels among buyers, with positive implication for property market performance, but also for the property industry, which is one of the largest industries in Australia, accounting for a significant number of jobs.
Market concern: Markets Sydney and Melbourne, however, are of potential concern to the RBA due to significant housing price growth in each of these markets compared with most other capital cities, which have performed moderately. Subdued market performance and confidence levels in other capitals is attributed largely to employment concerns, more moderate population growth and downturn in the resources sector.
Interest rates are at historical lows and encouraging notion for many would-be property buyers. However, before purchasing a property it’s imperative for buyers to consider the implications of future rate rises on the ability to meet loan commitments
Greville Pabst is a judge on The Block and the CEO of WBP Property, a leading property valuations and buyers advocacy firm.
Michael Cooney: “These interest rates have a double effect”
In a rising market, buy the best house you can possibly afford – and buy it quickly. In a months time it’s going to be much dearer. Any significant reduction or cash flow increase has a significant impact on all parties. The lower rates have a double effect. It effects both the market and buyers’ budgets.
Lower interest rates make loans more affordable, however, the other side to this is that homeowners are holding onto properties. The properties that would ordinarily hit the market aren’t, meaning less properties creating more competition.
With fewer properties in the market, people are paying more to secure them. Auctions with 1-2 buyers now attract 5-6. A smart buyer will find a property which is market price, ‘off market’ or pre competition and try and buy through a private sale. They can keep or buy a more expensive property, allowing them to stay in the market longer.
Impact on families
Families are getting mortgage relief if they use the interest rate cuts to their advantage. The biggest risks here are for homebuyers taking on debt.Every week you’re out of the market it is costing you money. I would buy first – not sell first in this market. If you sell first, you might not secure a property for a few months.
The rule of thumb is, if you can you can take on the mortgage at 7%, take it. If you can’t, don’t consider it ‘free money’.
About the author: Michael Cooney is a director at Hodges Real Estate in Beaumaris, Melbourne, specialising in real estate for almost three decades, of which has seen him accumulate over a billion dollars of residential sales.