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FHB activity surging in anticipation of rate cut

Expectations of cut to the cash rate from the RBA next week have triggered a rise in first home buyer activity, according to research from Finder.

Rate comparison site Finder.com.au has experienced a 55 per cent spike in visitors to first home buyer (FHB) guides this month when compared to May 2018. 

According to Finder, it’s the biggest spike in visitors to those pages in 12 months, which it noted has coincided with speculation of a rate cut from the Reserve Bank of Australia (RBA), which was also reflected in the ANZ/Roy Morgan’s latest Consumer Confidence Index.

In an address to the Economic Society of Australia last week, RBA governor Philip Lowe revealed that the central bank’s board would “consider the case” for a cut to the official cash rate in June.

Mr Lowe’s address coincided with the releases of minutes from the RBA’s monetary policy board meeting in May, in which it held the official cash rate at 1.5 per cent.

However, with inflation and labour market indicators continuing to fall below target, Mr Lowe said that monetary policy “has a role to play” in reversing the subdued market conditions.


The Australian Prudential Regulation Authority’s proposal to remove its 7 per cent interest rate floor for the assessment of home loan applications and the Coalition government’s First Home Loan Deposit Scheme have also been announced amidst expectations of a rate cut.  

Graham Cooke, insights manager at Finder, has said that the current market environment has provided FHBs with long-awaited opportunities to break into the property market.

“There’s a perfect storm brewing for first home buyers. Property prices are dipping, lenders are dropping their rates and a first home buyer’s scheme is on the cards,” he said.

“After 31 months of no change, all signs are pointing to a cash rate cut next Tuesday. The expected move is causing a flurry of rate drops among lenders, especially on the fixed home loan front.”

Additionally, Finder observed that seven lenders lowered their rates on more than 48 owner-occupier fixed and variable home loan products In the last week alone, while 40 lenders cut rates across 333 products over the entire month.

However, Mr Cooke encouraged prospective home buyers to consider potential rate hikes in the future before committing to a home loan.

“While we’re on the verge of a new historically low cash rate, what all borrowers need to consider is that rates will – eventually – go up,” he said.  

“With that in mind, [borrowers] should always factor in a 2-3 per cent buffer on top of their current home loan interest rate to accommodate for future rate hikes if and when they do happen.” 

Mr Cooke also encouraged  borrowers to take advantage of the government’s new FHB scheme, but issued a warning over the hidden costs associated with a high-LVR mortgage.

“Firstly, borrowers should also be careful here. A lower deposit will add more cost to your loan in the long term, and the increased risk to the bank may mean a higher interest rate,” he added.

“However, the potential savings from this scheme could be significant. First home buyers in Sydney could be getting on the ladder with just $45,000 – which does put the ‘great Australian dream’ back on the cards for many.”

[Related: Rate expectations driving lift in sentiment]

FHB activity surging in anticipation of rate cut

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