Noel Whittaker says RBA rate cut will lure FHB homebuyers into nightmare journey
The RBA rate cut will lure homebuyers into what may be a nightmare journey, the veteran personal finance adviser Noel Whittaker says.
The author of Making Money Made Simple warns FHB against "stretching themselves to achieve the dream of a first home at a time when rates are at historic lows."
"Eventually, they must start to rise again," he said in a Nine Entertainment column.
He noted last month the Australian Prudential Regulation Authority instructed lenders to ease up on eligibility criteria.
"Relaxing lending standards starts a chain reaction... the number of first-home buyers jumps, the extra demand pushes up house prices and it becomes even harder for young couples to get a foothold into the housing market.
"As prices rise, and affordability worsens, other potential buyers who are saving for a deposit panic, and rush into the market.
"To make matters worse, before the election the Federal government announced plans to let first-home buyers into the market with just a 5 per cent deposit."
Whittaker said the final step in the cycle is interest rates rising, homes being foreclosed and housing prices falling, or at least staying flat.
"Rates are now so low that any changes can make little difference to the economy," he suggested.