The Reserve Bank of Australia has rounded out 2023 with the decision to hold the nation’s cash rate at 4.35%.
2023 hasn’t been an easy year for homeowners or ambitious first-home buyers. The cash rate increased from 3.10% to 4.35% over the course of eleven months in the RBA’s bid to bring inflation back within its target range. According to data from the RBA, the average home loan rate at the start of the year (for existing home loans) was 5.46% p.a.. If the lender passed on interest rates in line with the increased cash rate, that would make the interest rate 6.71% p.a.. Based on the average Australian mortgage of $599,000 on a 25-year term paying principal and interest, that equals an additional $459 per month simply to service the mortgage (from $3,661 to $4,123 per month).
For first-home buyers, the average time to save for a deposit has increased to 14 years, according to a recent paper by the Australian Housing and Urban Research Institute Limited, with the national ratio of median house price to median income now sitting at 8.5.
That is the hard reality many Australians are currently facing. So the question is, what will 2024 bring? Short of looking into an Australian-economy crystal ball, we can’t predict exactly what will happen with inflation, the cash rate and therefore interest rates. However, there are a couple of factors to consider.
- The RBA will meet only eight times in 2024 to determine whether to move the cash rate, down from the eleven in 2023. This means potentially less movements through the year. The next cash rate announcement will be 6 February.
- Economists from the Big Four predict the cash rate is at, or near, its peak. Some predict at least one more rate hike in 2024 and rate cuts likely not happening until at least December.
- Despite predictions of a decline in house prices in 2023, they have actually continued to increase in most areas around the country. This could be good news for refinancers as we enter 2024, as they could find their equity has grown.
Why 2024 could be a good time for first-home buyers
Despite some potential challenges, 2024 could actually be a good time to get into the housing market. Here’s why.
- Savings interest rates are up – the pro of the cash rate going up is that savings interest rates also tend to go up. This can help expedite saving for a deposit.
- It could be cheaper to be a homeowner – according to PropTrack data, it is now cheaper to buy an apartment rather than renting one in most capital cities (based over a ten-year period with a 20% deposit). In fact, a third of properties nationally are cheaper to buy than rent.
- The First Home Guarantee has expanded – in 2023 the eligibility criteria for the First Home Guarantee, Family Home Guarantee and Regional First Home Buyer Guarantee was expanded, enabling eligible buyers to get into the market sooner. This means if you have a 5% deposit (or 2% if you are a single parent or guardian), you may be able to use one of the schemes to purchase property without paying lenders mortgage insurance.
- ‘Help to buy’ scheme to be introduced – the federal government has announced plans to rollout a new scheme that will help up to 40,000 eligible buyers with as little as a 2% deposit get into the housing market with lower repayments.
If 2024 is the year you want to purchase your first home, it is a good idea to speak with your broker to find out how much you may be able to borrow and set a plan in place to achieve your goal.