For weeks, it’s been impossible to watch the news, open social media or even have a discussion without hearing the word Coronavirus. It’s dominating headlines and causing major changes to be made around the world and in Australia.
But, with the speculating media spreading overwhelming amounts of information, it can be hard to know what to believe and what the impact means for you.
Epidemiological threats like this have disruptive effects on the global economy. In Australia alone, we’ve begun to experience the severity of these effects already. Several economists and commentators began to put pressure on the Reserve Bank of Australia’s (RBA) board to cut the cash rate after the Australian share market took a beating. Following the flurry of predictions and speculation in the media, on March 3 the Board voted to cut the cash rate to a record low of 0.5%, leaving little ammunition available for the central bank to support the economy with interest rate stimulus in the future.
RBA Governor Philip Lowe said the decision was largely based on the need to support the economy as it responds to the outbreak. “The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target,” Dr Lowe said. He also said the virus was particularly hurting the education and travel sectors, and the central bank was prepared to ease the cash rate further if need be. By cutting rates and having lower interest rates, the RBA hopes that Australians will do their part for the economy and start spending.
With the rate in place and banks and lenders starting to pass on the reduction to their interest rates the question was raised, what does this mean for the property market? Whether you are preparing to sell, buy or invest, it’s important to understand what this means to you. In order to take a deeper look into the situation, we’ve enlisted the help of Ruan Burger, Managing Director of Time Home Loans, to discuss the situation and lay down the facts.
What happens now that the RBA have cut the cash rate?
“The majority of lenders have now come out and advised that they will pass on the full 0.25% reduction. There are a few that are dragging their feet, but all the major lenders and most second tier lenders will have their rates lowered by the end of this month,” he said. “There are one or two lenders who have not passed on the full rate cut, and we generally see that people will show those lenders their dissatisfaction by moving banks.”
“On a more general note, there are quite a few refinancing rebates out at the moment with lenders offering up to $4,000 for you to refinance your property. With a refinance generally costing a client around $1,100, that’s money back in your pocket for a weekend away!”
So, interest rates are lower, what’s the relationship with property demand?
“We would certainly hope to see demand for property increase, especially across the investment sector as rents received will put people in a more neutral or positively geared position when borrowing for property. Both first homeowners and people looking to upgrade, may find that the reductions could even put them up into the next price bracket. If you’re considering selling, this is great news for you!”
“We would encourage prospective buyers to take advantage of the historic low rates, by either getting into the market or upgrading to their next property. There are so many lenders with great offers at the moment that both new and existing borrowers can take advantage of. It’s a great time to talk to someone like us who can lay them all out for you so you can be in the best possible position and maybe save money along the way.”
And increased demand means…?
“With Interest rates going down, we generally see an uplift in property prices as demand starts to increase with home and investment loans becoming more affordable. With changes to the lending floor rates last year and how lenders calculate a person’s ability to service a loan, the reduction to rates should see borrowers being able to get a little more bang for their buck in terms of borrowing capacity.”
“Despite worldwide fears and uncertainty (being spurred by the media), we would hope that Australians can start to look past this and take advantage of the current lending market to secure themselves a great deal on their home loan.”
Ultimately, the best thing about the low rates is that you will have a little extra in your pocket you can use to help secure a better financial position. The best thing you can do is talk to lending experts, like the team at Time Home Loans. They will be more than willing to organise a time to take you through all your options and show you how you can make the most of the interest rate drops based on your individual circumstances and goals. Otherwise, if you’re in the position to sell, buy or lease your property Place Estate Agents will have a local expert who can help you.
If you want more local stories, market and real estate news straight to your inbox, subscribe to our newsletter below.
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.
Article by Daisy Hicks