In light of the Reserve Bank slashing interest rates to 1%, a new historic low, there is one question on everyone’s minds - is now the time to jump in? Prospective buyers may be enticed into the market by cheaper home loans and increased certainty surrounding the country’s political future. While it may be as good a time as ever to enter the property market, it’s vital that you look beyond the temptation of low interest rates. This article offers guidance on how to capitalise on the current property landscape and find the loan that suits you.
RBA cuts interest rates - is now the time?
After long hinting at a move to combat the slowing Australian economy, the RBA cut interest rates by 0.25% to a low 1%. Unsurprisingly, this has potential investors considering options, as competition heats up between mortgage lenders to see who can offer customers the lowest interest rates. New borrowers will be tempted by rates that remain well below those with outstanding loans. For those looking to refinance or take out a new loan, the time is ripe to start comparison shopping. Shopping around for the ideal loan can save you a lot of money, so it’s worth taking the time to do some investigating.
According to recent research, the average borrower could save $1,500 by getting one extra rate quote when applying for their mortgage. Borrowers could save $3,000 or more by getting up to five. But the same research shows that consumers aren’t doing this even though the savings are clear. It goes without saying, evaluating complex loans is a confusing task that deters consumers from making financial decisions in their best interest to the benefit of the big 4 banks. Keep it simple, look for a home loan with minimal fees, low interest rates and flexible features. As a starting point, try our Home Loan Finder calculator.
In response to public dialogue surrounding rising property prices and a lack of affordable housing, the government has introduced tax changes intended to restrict investor activity. Much of the policy-making has been designed to open up opportunities for first-home buyers by making it harder for foreign investors to dominate the property market. The vacancy fee states that any foreign owner who lets their property sit unoccupied for more than six months (183 days) of the year must pay a fee of at least $5,500 (revisit based on 1% calculation & source for compliance purposes). In addition to this, the government has increased the foreign capital gains tax and limited the deductions that can be claimed by foreign and local investors alike. Fortunately, the election outcome has yielded positive results on the tax front that should have both first home buyers and investors excited about the future of the market.
The results are in
A tumultuous election period has ended on a positive note for potential investors, as Labor’s proposed cuts to negative gearing will not go ahead for now. Impending changes to the capital gains tax have also been dismissed by the Liberal Party’s victory, making the prospect of taking out a loan far less concerning. The election result has restored a sense of stability to the market that should have existing and potential investors breathing a sigh of relief, as much of the uncertainty regarding tax policies has been eliminated.
On the other hand, those looking to purchase their first home are faced with a dilemma. Days before the election in May, Prime Minister Scott Morrison made an election promise to help first home buyers achieve their dream. By January 2020, he promised to introduce a First Home Loan Deposit Scheme allowing first home buyers to purchase a house with a deposit as low as 5 percent, compared with the current requirement of 10 or 20 percent. Those who were looking to purchase in 2019 may choose to postpone their plans to 2020 with the expectation the government will hold true to their promise. Meanwhile the housing market is showing signs of an upwards swing. Will a property purchase in 2020 compared with one in 2019 offset the potential savings of a 5 percent deposit? This very question is leaving many first home buyers hanging.
Fixed or variable - which way will the market move?
Now that the election outcome has removed some of the uncertainty surrounding the property market, investors should be well positioned to make a decision on how best to capitalise on historically low interest rates. If however you are still plagued with indecision, talking with a mortgage broker is the perfect starting point to help you find the right loan for your circumstances.
And you won’t be alone. Due to declining public trust in the big banks, up to 60% of borrowers are now turning to mortgage brokers to get them a better rate for their home loan.