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How zero interest rates in Australia could stop young people buying a home

Zero interest rates could stop young people from getting into the housing market after the coronavirus recession is over, experts warn.

The Reserve Bank of Australia this month slashed the cash rate to a new record-low of 0.1 per cent – the third cut since March.

RBA Governor Philip Lowe declared zero were ‘extraordinarily unlikely’, but more housing market players are stepping forward to second guess the central bank.

Daniel Walsh, the director of the Your Property Your Wealth buyers’ agent, last year predicted ‘the cash rate will hit zero in the next few years’ and is now doubling down on his forecast.

Zero interest rates could stop young people from getting into the housing market after the coronavirus recession is over. House prices in October rose in every capital city except Melbourne (Doncaster house pictured) even before the latest interest rate cut

Zero interest rates could stop young people from getting into the housing market after the coronavirus recession is over. House prices in October rose in every capital city except Melbourne (Doncaster house pictured) even before the latest interest rate cut

‘The pandemic added an urgency to what was likely to happen anyway with the Reserve Bank dropping the cash rate again in early November to just 0.1 per cent which, let’s face it, is zero in every sense but name,’ he said.

The worst of the coronavirus housing market downturn appears to be over with Sydney’s median house price rising 0.5 per cent in October, CoreLogic data showed.

The first monthly increase since April took mid-point values up to $993,927, cementing Sydney’s place as one of the world’s least affordable housing markets.

Melbourne was the only capital city market last month to post a house price fall – while coronavirus lockdowns continued – as 21 regions in Australia saw values hit new record highs.

Suburbs of Brisbane, Hobart, Adelaide and Canberra set new records along with coastal provincial cities from Coffs Harbour on the New South Wales Mid-North Coast to Queensland’s Sunshine Coast.

Daniel Walsh, the director of the Your Property Your Wealth buyers' agent, last year predicted 'the cash rate will hit zero in the next few years' and is now doubling down on his forecast. He is pictured with his wife Sophie

Daniel Walsh, the director of the Your Property Your Wealth buyers’ agent, last year predicted ‘the cash rate will hit zero in the next few years’ and is now doubling down on his forecast. He is pictured with his wife Sophie

Australia’s cheapest home loans

Reduce Home Loans Rate Cutter Variable: 1.77 per cent

Homestar Finance Star Gold variable: 1.79 per cent

Pacific Mortgage Group variable loans: 1.89 per cent

UBank three-year fixed rate: 1.95 per cent

National Australia Bank four-year fixed rate: 1.98 per cent

Commonwealth Bank of Australia Wealth Package four-year fixed rate: 1.99 per cent

Westpac Premier Advantage Package four-year fixed rate: 1.99 per cent

ANZ Breakfree package one, two three-year fixed rate: 2.09 per cent

NAB two and three-year fixed rate: 2.09 per cent

Westpac Premier Advantage Packet two and three-year fixed rate: 2.09 per cent

CBA two and three-year fixed: 2.14 per cent

CBA one-year fixed: 2.19 per cent

Athena variable loans: 2.19 per cent

Freedom Lend: 2.19 per cent

ANZ four and five-year fixed rate: 2.29 per cent

Source: Canstar, Finder, major banks

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Three of Australia’s big four banks are now offering fixed-interest rates of less than two per cent for the first time ever.

Then there are non-bank lenders offering even lowest rates, including Reduce Home Lands with a standard variable rate of just 1.77 per cent.

UBank, a digital subsidiary of National Australia Bank, has a fixed rate of just 1.95 per cent, undercutting equivalent products from NAB (1.98 per cent), Commonwealth Bank (1.99 per cent) and Westpac (1.99 per cent). 

Mr Walsh said record low home mortgage rates would inevitably push up house prices.

‘Historically low rates are likely to supercharge property price growth over the short- to medium-term, which is a situation that the Reserve has made peace with if it stimulates our economy,’ he said.

‘Right now, savvy investors are making the most of the current situation by investing in strategically located properties that are offering plenty of upside potential – as well as benefiting from the cheapest money we’re likely to ever see.’

Zero interest rates already exist in Sweden and are at negative levels in Switzerland, Japan and Denmark where its central bank, known as the Danmarks Nationalbank, has a minus 0.6 per cent rate for deposit accounts.

Since 2019, the Danish Jyske Bank, has offered home borrowers a negative annual rate of 0.5 per cent for 10 years.

A rival bank, Nordea, offered the minus 0.5 per cent rate for 30 years.

Dr Lowe said on November 3 the Reserve Bank would not be raising interest rates for at least another three years.

The RBA, which also cut rates twice in March, wants unemployment, now at 6.9 per cent to fall back to pre-pandemic levels closer to five per cent.

Inflation is rising by an annual pace of just 0.7 per cent, putting the September figures well below the central bank’s longstanding two to three per cent target.

Digital Finance Analytics principal Martin North, a financial analyst, said Dr Lowe had previously ruled out cutting rates to new record lows only to do so, making negative interest rates a possibility.

‘He previously said rates won’t drop below 1.5 per cent then said they won’t drop below 0.75 per cent so do we believe him on negative rates?,’ he asked.

Prospective borrowers appear to be getting the message with the Westpac-Melbourne Institute consumer sentiment survey for November showing an eight per cent surge in the number of Australians who thought now was the right time to buy property.

In the four months to September, the value of new home loans jumped by 34 per cent, Australian Bureau of Statistics data showed. 

The Reserve Bank of Australia this month cut the cash rate to a new record-low of 0.1 per cent - the third easing since March. While governor Philip Lowe has declared zero were 'extraordinarily unlikely', more housing market players are stepping forward to second guess the RBA

The Reserve Bank of Australia this month cut the cash rate to a new record-low of 0.1 per cent – the third easing since March. While governor Philip Lowe has declared zero were ‘extraordinarily unlikely’, more housing market players are stepping forward to second guess the RBA

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