The Question Every Homebuyer Is Asking
When will interest rates start coming down?
It's the biggest question in the real estate market right now.
It seems incredible to think the Reserve Bank of Australia actually put them up to 4.65% in November last year. Since then, it has steadfastly refused to move despite having seven meetings to consider its options.
As an experienced agency, we understand the impact of interest rates on the outlook of buyers and sellers. It ranks right up there with confidence in the economy, personal job security and property price trends.
We also know it takes a full 1% reduction to change the mood of the market.
So, you should not expect the earth to move if the RBA starts cutting in 0.25% increments.
A second dangerous assumption is that lenders will pass on the interest rate cut. They don't have to do that – and there's precedent for them not doing so, claiming they need to keep the benefit to contain their own costs.
Right now, lenders are trying to encourage buyers and owners into fixed rate mortgages because they expect rates will be substantially lower over the next couple of years.
You'll no doubt have noticed a number of deals being offered for fixed rate mortgages. You can get a two-year median fixed rate at 5.99% p.a. or pay 5.97% for a three-year deal.
By locking as many new customers as possible into these deals, lenders will protect their position when rates fall below these levels and they have to pass on the benefit of lower rates to customers with variable loans.
If you're looking at your loan options – especially if you're considering upgrading soon – you should consider carefully the outlook of mortgage costs.
The benefit of a fixed rate is the predictability of locking in your costs.
And what about the question of when rates will start to fall?
Comparison website Finder recently conducted a survey of 34 economists that reported 44% expected a reduction in February and 15% in May.
Market outlooks published by our four big banks also all assume rate cuts. The ANZ, Westpac and NAB forecast first move in February. Commonwealth is the outlier, believing a cut will occur this month.
