The impact of the interest rate drop

The recent drop in interest rates by the Reserve Bank has created good news for mortgage holders and first time home owners. As rates are passed on by the banks, monthly repayments are reduced.

It is everyone’s dream to own their own home. However, with house prices in Australian cities being some of the most expensive in the world, a growing number of people have been renting for longer, unable to make the leap onto the property ladder.

What does this change in interest rates mean for those in the property market: home buyers, property investors and renters?

What has dropped?

The Reserve Bank of Australia’s recent decrease in interest rates to a low of 2.5% is a historic low that has not been seen in Australia since 1960. This decrease follows a steady drop in interest rates since November 2011. In December 2012 rates were cut down to a rate of 3%, bringing interest rates to a level not seen since the economic crisis of 2009.1

How does this effect home buyers?

With this recent drop in interest rates from the Reserve Bank and house prices still at a low from a slump in the market, it may be a relatively good time to jump on the property ladder. People looking to purchase a house with a mortgage will be able to reap benefits of lower monthly repayments.

Is it good news for investors?

This drop can also be a great opportunity for investors looking for an investment property. Rental prices have experienced a steady growth in recent years, and there is great demand for rental properties, putting property owners in a good step to make a healthy return. The drop in interest rates may also see the value of properties start to rise again after a recent slump.

I’m a renter, how will the drop affect me?

There are concerns from House Lobby Group and Australians for Affordable Homes that the decrease in the interest rate will put up the price of rent. This drop in interest rates will increase the price of housing, which may be passed onto the 1 in 3 Australians who rent their home.2

Affordable housing has been one of the top identified concerns of voters in the upcoming election called by Prime Minister Kevin Rudd for September 7th 2013. Renters have for a long time felt that they are not in a position to negotiate due to the high levels of competition with other renters for housing. Affordability doesn’t come into play in the larger cities, with continual high demand for rental properties.

However, another point of view from SQM Research is that the more investors and rental properties on the market may slow the rise in rental prices due to more choice for renters. On top of this, people are attracted to buying; there may also be an increase in renters making the move to home owner, reducing competition amongst renters.

This will be a welcome relief for the busy rental market. LJ Hooker principal Andrea Philips commented on the recent property activity: “The rental side of the business has been much busier than the ownership side, but we have seen an increase in people purchasing homes.”3

  1. NewsDomain
  2. Low interest rates bring concern for home rentersABC News
  3. Interest rates cut may stir more interest from home buyersGladstone Observer

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