Aspiring property buyers in Canberra are taking a more leisurely pace when it comes to buying a new home, reconsidering how much they are prepared to spend to avert financial stress as interest rates climb.
Mortgage broker and Director at ACT Finance Solutions, Fiona McKinnon, said inquiries from mortgage holders seeking refinance options and more competitive interest rates had surged over those wanting to take out new loans.
“People are still purchasing but are taking more time and are being a bit more conservative in their price point so there is a healthy repayment capacity,” Ms McKinnon said.
“There is a higher level of inquiry in relation to refinancing opposed to purchasing at the moment. Some buyers who bought at the top of the market and were a bit stretched at that point time are now feeling the pinch.
“The transition from variable to fixed rates is occurring and borrowers are particularly interested in competitive interest rates and benefiting from refinance rebates to assist with this transition.”
In early May, the Reserve Bank of Australia lifted the cash rate another .25 percentage points to 3.85% after a month’s pause. It marked the 11th interest rate rise in the past year, adding extra pressure on homeowners with surging mortgage repayments and cost of living pressures.
The RBA has warned that further interest rate increases are still possible, depending on how the economy and inflation evolve between now and June.
Ms McKinnon said bridging finance – a short-term loan to help buyers purchase a new property while still selling their current home – appeared to be more popular as it could provide a higher borrowing power.
It comes as a new research, released on May 18, found that extended periods of low interest rates could lock buyers out of the property market.
The Australian Housing and Urban Research Institute (AHURI) study Financing first home ownership: modelling policy impacts at market and individual levels modelled the relationships between different housing finance conditions and people’s ability to buy their first home.
John Curtin Distinguished Professor Rachel Ong ViforJ said the research, undertaken by researchers at Curtin University in Perth, the University of Sydney and RMIT University in Melbourne, found lower interest rates had actually hindered the ability to buyers to get into the market.
In the 25 years between 1994 and 2017, the average interest rate on owner-occupier mortgages fell by almost 5% and as a result, demand for properties grew and house prices more than doubled.
“Falling interest rates may seem appealing to first homebuyers but in real terms, it only increases competition and pushes prices higher, sometimes out of reach for those trying to get into the market for the first time,” Professor ViforJ said.
The study found 84% of aspiring first homebuyers do not have enough savings for a home deposit, with 71% unable to even get a foot on the property ladder because they could not meet mortgage repayment requirements.
Almost nine in 10 aspiring first homebuyers were locked out of home ownership due to borrowing constraints.