The Reserve Bank of Australia is odds on to hold interest rates steady, but first home buyers are still about to get a significant leg up.
Economists and bond traders expect the central bank to leave the cash rate at 3.6 per cent when it wraps its latest monetary policy meeting on Tuesday after inflation came in hotter than expected.
A jump in the monthly consumer price index from 2.8 per cent to three per cent in August validated the Reserve Bank’s cautious approach in cutting rates, online property marketplace Domain’s chief economist Nicola Powell said.
Opposing forces in the economy, including rising inflation, soft economic growth and a robust labour market, were causing the central bank to exercise caution, Chartered Accountants ANZ chief economist Richard Holden said.
It was even possible the bank had already delivered its final cut this cycle, he said.
The Reserve Bank has lowered mortgage rates three times since February, shaving more than $270 from monthly repayments for an average home loan of $600,000.
Boosted with extra purchasing power, increased demand from prospective homebuyers has driven home prices to fresh highs after seven months of consecutive growth, according to Cotality’s home value index.
While Dr Powell doesn’t expect more interest rate relief until at least November, first-home buyers will receive another boost on Wednesday.
The federal government’s expanded first-home buyer guarantee scheme, which enables eligible Australians access to five per cent deposits, will slash the time it takes to save for a home.
In Sydney, where property price caps for the scheme have been lifted to $1.5 million, a couple on a dual disposable income of $123,674 will see their time to save for a deposit cut from more than 10 years to less than three years.
Homebuyers in Melbourne and Brisbane will save five years and nine months, while Adelaide purchasers will have the deposit hurdle lowered by five years and seven months.
There are downsides to the scheme, Dr Powell noted.
A lower up-front deposit meant more debt overall and a higher risk of slipping into negative equity if prices fell, while extra demand from first-home buyers would further bid up home prices.
Housing Minister Clare O’Neil said the scheme would help young Australians start building equity in their own home rather than paying off someone else’s mortgage.
“That’s life-changing,” she said.
Rising rental costs have further boosted the value proposition of the scheme to first-home buyers, Cotality head of research Eliza Owen said.
In Sydney, even if a first-home buyer shaved just six years off their time to save for a deposit, that would save them $251,000 on rent for a median rental of $801 a week.
“Even though a smaller deposit means paying more interest over time, it could still work out cheaper for renters,” Ms Owen said.
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