Is now the best time to buy property? Australia's official cash rate to remain at 1%

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Is now the best time to buy property? Australia's official cash rate to remain at 1%
Is now the best time to buy property? Australia's official cash rate to remain at 1%

The Reserve Bank of Australia has just announced that the official cash rate will remain at a record low of 1% as they continue to assess the impact of the June and July cash rate cuts.

The rate was lowered for the first time in almost three years in a bid to alleviate financial strains by reinvigorating household spending and attempting to boost employment rates across the country. According to CommSec’s Tom Piotrowski, Australia's economy has been growing at the slowest pace in almost a decade, however, an increase in clearance rates, rising home values, and greater housing demand could allude to a brighter outlook for Q4. 

IT’S ARGUABLY “EASIER” TO BUY PROPERTY IN THE CURRENT MARKET

In July Urban.com.au reported on the announcement of the 1% cash rate, concluding that the property market appears to be in favour of borrowers at present, given the more relaxed lending constraints and lower interest rates on home loans.

We reached out to Jeremy Toeng, Financial Director and Lending Advisor at Chatham House Financial, who shared a similar opinion regarding the current property climate following the two 25 basis point cuts and APRA's announcement of a lowered minimum interest rate serviceability buffer.

“Following both the Royal Commission and Federal Election, we feel that consumer sentiment has improved which is leading to a noticeable increase in activity, particularly for those looking to purchase property. We feel this is largely due to an easing of lending criteria which has helped consumers with affordability, as well as a reduction in interest rates.”

Jeremy Toeng, Chatham House Financial Director & Lending Advisor

CONCERNS ABOUT MORTGAGE SERVICEABILITY

CoreLogic Research Director Tim Lawless explains that with the low mortgage serviceability there will be an underlying concern that the issue of high household debt will remain unresolved.

"...The recent step up in the pace of value growth is likely to raise some concern that the lowest mortgage rates since the 1950s is fuelling renewed housing market exuberance at a time when household debt remains around record highs.”

Tim Lawless, CoreLogic Research Director via news.com.au

Lawless suggested that a solution to this could be limiting the amount given to borrowers on high debt-to-income ratios, or stricter limits on the loan to value ratio (LVR) which compares your loan amount with the value of your property – meaning the lower the 'LVR', the lower the financial risk for the bank. 

COULD PROPERTY VALUE GROWTH INDICATE A GOOD TIME TO BUY?

Our research showed that while term deposits would experience a drop in interest return from banks, property could potentially be a safe investment, given the fact that property values have shown an exponential increase in recent months.

“In line with rate cuts in June and July, housing values in Australia’s two largest cities have recorded a lift, with dwelling values rising 1.9 per cent and 1.8 per cent in Sydney and Melbourne over the past three months.”

Tim Lawless, CoreLogic Research Director via news.com.au

Jeremy Toeng also weighed in on the current markets, concluding that spring is looking up for both developers and buyers,

“On the property front, clearance rates are increasing and whilst overall stock levels are low, we think this will increase as we head into spring which is traditionally the busiest time of the year in the property market.”

Jeremy Toeng, Chatham House Financial Director & Lending Advisor

In May earlier this year, CBRE’s Andrew Leoncelli also predicted that Q4 would be a good time for developers to take their projects to market, given an uplift in demand for property. It'll be interesting to see how Q3 and Q4 play out, and whether the property market maintains upwards momentum. 

Lead image credit: Daniel Chen

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