No big surprise today, with the Reserve Bank of Australia leaving interest rates on hold at 2.5% again, and to talk more about the impact to housing affordability, we spoke with Alex Parsons, the CEO of RateCity.
So Alex, some relief for variable borrowers, at least for another month.
Absolutely, and in light of the recent Federal Government Budget, where frankly most Australians are going to be worse off, it’s great news for mortgage borrowers in that their repayments will be steady for another month.
Recent research indicates that housing affordability is at its more favourable level in 12 years, what are your thoughts on that?
Yes, the HIA/Commonwealth Bank’s Housing Affordability Index has come out, which does support that. And despite that being tough news for new home buyers, in particularly Sydney where they probably can’t believe that to be true, record low interest rates, coupled with increases in income have made housing affordability better than it has been in the last 12 years.
So let’s talk about lower interest rates, a little bit easier to get a loan – that’s something that APRA has been focusing on of late
Absolutely, and while they haven’t been making any regulatory moves in that space there has been a lot of talk about this risky lending and higher LVRs and in fact most recently we’ve seen Suncorp dial back the amount of loans they will give with the LVRs over 90% and I think that really is a first mover in the market; I think we’ll start to see other institutions start to bring that back a little bit and really ultimately stop people maxing out the amount of credit they take up when buying a new house.
We’ve also seen the highest level of interest-only loans being taken out since the GFC.
We have seen that investor versus owner-occupied that investors are rising faster and investors prefer the interest-only loans as it fuels their investment vehicle. So as interest rates have come off, as property prices heated up, property investment from an investment perspective has also heated up as well.
So Alex, have you got any other tips for Australians wanting to buy into the property market this year?
The key thing for new buyers is don’t overstretch. There are facts here; record low interest rates – the long term average is much higher than we are today and we’ve got a hot property market. All of those things together can lead to, particularly for new home buyers, really overstretching. If interest rates do rise, or I should say when interest rates do rise, and while we are in a flat interest rate climate at the moment, over the long term I think the consensus is they will rise at some stage, you really want to be sure that you can make those repayments and you don’t fall into the trap of mortgage stress.
So my key tip: don’t max yourself out, be able to afford 2 percentage points increase on your home loan.
Well as we’ve said, interest rates on hold again this month. And thanks to Alex for joining us and for your tips for Australians and we look forward to chatting to you again next month.