Low interest rates bolster property market
Interest rates have been a steady pillar of support in the property market over the past few years. The Reserve Bank of Australia (RBA) has been on an expedition to trim the official cash rate since 2011, an objective that was continued through to May when the cash rate dropped 25 basis points to 2 per cent.
This factor has been particularly advantageous for younger buyers, improving the affordability of real estate in Australia.
The RBA’s latest announcement looks to have bolstered these conditions. Governor Glenn Stevens said that the bank would be retaining the 2 per cent cash rate for the second month in a row on 7 July, extending the incredibly cheap borrowing conditions.
The Housing Industry Association (HIA) said this decision was largely to be expected and should prop up activity in the housing market. Chief economist Harley Dale pointed out that speculation about the future of interest rates would remain, but low borrowing costs are set to stay for the time being.
“Regardless of whether the interest rate gun stays in the rack or not, the key is that super low borrowing costs are here to stay throughout 2015/16,” Dr Dale said.
“That will help support housing activity at a time when there is scant evidence of strong momentum elsewhere in the domestic economy.”
Households handling home loans
While there has been some concern about the rate at which households are taking on debt, as well as the soaring values of real estate in Sydney and Melbourne, recent research from the Australian Bankers Association (ABA) shows that households are more than capable of handling the costs of home ownership.
For buyers making their tentative first steps into the property market, the report can offer some reassurance. Though the value of housing-related borrowing has jumped 7.3 per cent on 2014, the level of household debt still sits below the proportion recorded during the global financial crisis.
Even more encouragingly, the report reveals that homeowners are, on average, some two years ahead on their mortgage repayments. This is due in part to savvy saving habits and the low level of interest repayments on their home loans.
“As might be expected in a low interest rate environment, households are increasing their borrowings for housing,” said ABA executive director for industry policy Tony Pearson.
“While households are now increasing their borrowings faster than income, this increase in borrowings is being more than matched by an increase in the value of household assets.”
With low borrowing costs set to be a feature of the property market for some time yet, and homeowners making the most of their finances, young buyers can feel confident in the prospects of home ownership.