Bad news for first home buyers looking to apply for a mortgage. The largest major Australian banks have already begun to increase the rate of interest for all new fixed home loans applications. This was to be expected. You might be forgiven for thinking that the banks would only need to do this when the RBA increases the base rate of the cost of borrowing, but you would be mistaken.
Banks raise Interest Rates when new price hikes are on the horizon
Despite the RBA remaining firm in the face of pressure to increase interests rate ahead of 2024, the big banks are already increasing fixed rates mortgages. Simply put, the banks know that sooner or later, a rate increase is coming, so they are pricing in these foreseeable increases into their fixed-rate loans now. Not doing this, they claim, would mean that the banks would be bound to pre-existing loans which would reduce profitability (and we all know that can't be allowed to happen! ).
Raising rates will make it harder to buy a house you want
In short, this basically means that if you are taking out a fixed-rate mortgage now - as opposed to just a few short months ago - you will be paying considerably more to service your mortgage. With the average price of a Brisbane home now exceeding 750,000, a 1% increase in loans means that you need to find an extra $2,500 per 250k remaining of the mortgage. For the average home above, assuming you had 250,000 equity, then you need to find an extra $5000 a year, an increase of almost $100 a week. So what can one do?
Pay more or borrow less.
The knock-on effect of this is that buyers relying on home loans will be less able to service higher amounts, meaning that they will only be eligible to apply for smaller loan amounts. This will price some people out of the market and should have an indirect effect of cooling the market. So in theory, we should see clearance rates begin to reduce in the capital cities right?
Sydney and Melbourne - cooling, Brisbane - no let up.
A good indication of the state of the housing market is clearance rates. According to www.realestate.com.au “The clearance rate is a percentage that is calculated by: Adding the total auction properties that were sold for the week (including those sold before and after the auction) and dividing this by the number of auction results available (including Sold, Withdrawn and Passed In results)". From here, you simply multiply by 100 to get the clearance rate percentage. In a nutshell, the higher the clearance rate, the better. To see a trend, you can compare this month's clearance rates to previous results.
What are the different clearance rates in Sydney, Melbourne and Brisbane?
In October 2021, we experienced clearance rates of 71 per cent in Sydney and 69 per cent in Melbourne. This would suggest that the red hot market is cooling somewhat (but still, red hot).
Brisbane has again bucked the trend and resisted downwards pressure with a strong clearance rate of 81 per cent. In short, Brisbane and South East Queensland’s property market show no signs of letting up.
Will Brisbane's property market surge?
Like the stock market or Cryptocurrencies, no one knows for sure what the future holds for Australia's runaway property market. Prices may have further growth to realise and might be about to get hotter in Brisbane and the Gold Coast. With borders set to open on December 19th, there is a definite likelihood of increased buyers and sales; which despite interest rate rises, supports continuing house prices increases. In fact, the high clearance rate is likely a reflection of the wildly held view that there is an increase in buyers coming. As result, vendors and their real estate agents are maintaining their confidence that the future for Brisbane’s property market remains bright.
All information contained on this website is for your reference only. You should always make your own enquiries and seek independent legal advice in respect of any information about real estate law and the purchasing of real estate and related subjects. This website may contain hyperlinks to websites operated by parties other than PestBuildLegals. Such hyperlinks are provided for reference only. PestBuildLegals does not control such websites and is not responsible for their contents.