Grim reality of great Australian dream amid rising interest rates

ANOTHER interest rate rise has come as bad news to aspiring homeowners, with the Australian dream slowly becoming more myth than reality.

Soaring inflation and cost of living is doing little to help the situation, with fresh concerns the latest batch of first-home buyers will be forever locked out of the housing market as increasing costs erode any efforts at saving for a deposit.

That’s coupled with worries firsthome buyers will miss the boat as house prices trend downward in 2023 so far.

Low housing supply continues to weigh on rental vacancy rates in capital cities, pushing the cost of rent ever higher.

For example, Domain data for February shows Melbourne’s rental vacancy rate sitting at just 0.8 per cent, while Real Estate Institute of Victoria (REIV) data shows the city’s median rent for houses in January at $520 per week.

With the official cash rate now sitting at 3.6 per cent, borrowers are also being hit by a major regulator’s refusal to budge on a policy decision, prompting outcry from the body representing Australia’s brokers.

The Australian Prudential Regulation Authority (APRA) continues to insist on banks adding a three per cent loan serviceability buffer, which is also an ongoing headache for those looking to refinance.

The buffer is added to a lender’s interest rate for assessment purposes.

Finance Brokers Association of Australia (FBAA) managing director Peter White said APRA needed to ease up.

“A three per cent buffer was appropriate in the past because interest rates were at an all-time low and were always going to rise significantly, and this protected both the banks and the borrowers,” Mr White said.

“But we can’t live in the past and a buffer of 1.5 to 2.0 per cent is far more appropriate today and in the near future. “It’s time borrowers stopped paying the price for the rapid rise of rates … rates should have been managed better and raised in smaller increments over a longer time period.”

On Thursday, NAB and Westpac became the first two banks to pass on March’s 0.25 per cent rate rise in full to home loan customers.

The two banks also increased interest rates on savings accounts in order to help in turbulent economic circumstances.