Cut to rouse home buyers

Lift to borrowing power

AN interest-rate cut by the Reserve Bank of Australia may help home buyers invest on the Gold Coast again, experts say.

Today the RBA is expected to lower its official cash rate from 1.5 per cent to 1.25 per cent.

A rate cut, combined with another likely cut within months and recent regulator moves to help with mortgage serviceability, will dramatically boost households’ borrowing power, new figures show.

Research group Canstar has found an average wage earner would be able to borrow an extra $32,000 – up from $363,000 to $395,000 – if the changes go through as expected.

The last time the RBA cut the official interest rate was in August 2016 where major banks passed on 0.1 per cent instead of the 0.25 per cent cut.

Real Estate Industry of Queensland Gold Coast zone chair Andrew Henderson said any interest rate cut was welcomed in the city to make housing more affordable.

“We’ve had strong owner occupier now for the last 18 months to two years,” he said. “But I think (the rate cut) will potentially be the catalyst to get investors into the market.

“Owner occupiers had become stronger due to the southern migrations to the city for permanent living. The investors were potentially priced out because of their own math (budget).”

He said the median price on the Gold Coast was still a lot cheaper than other large cities, but still offered a great lifestyle as well as ample job opportunities.

Mortgage Choice Miami, Burleigh and Palm Beach group director James Hasselle echoed Treasurer Josh Frydenberg’s sentiments that the banks should deliver any cut in full.

“If they are shown not to pass them on, the borrower needs to be looking at another lender and looking to change it,” Mr Hasselle said.

He added that a proposed change to the ‘7 per cent flaw’, an outdated stress test by banking regulator APRA, could also help borrowers.

APRA currently requires banks to base borrowers’ mortgage serviceability stress tests on an interest rate of around 7.25 per cent, but has proposed that this change to 2.5 per cent above the standard variable rate.

He said that a bigger push to use the government’s first home buyers grant, which had “been quite vacant in the market” over the past few years, would also help.

BetaShares chief economist David Bassanese said a Reserve Bank rate cut today was “the surest bet with regard to interest rates there’s been in a long time”.

“The RBA, when it decides to move rates after not moving for a while, typically has at least two in mind,” he said. “I think it’s also likely that they cut rates in August, and again in November.”