Record-low interest rates mean that it is now cheaper to buy than rent, with first home buyers taking advantage, doubling their participation in the market, a big four bank CEO has said.
With the official interest rate at a record-low 0.1 per cent, NAB CEO Ross McEwan has pointed to a surge in first home buyers, even though the capitals are currently in a hot market.
In a media interview with 2GB, Mr McEwan said that contrary to popular sentiment, low interest rates have not priced first home buyers out of the market.
“Well, an interesting thing about first home buyers, there are more first home buyers getting into this market than we’ve seen probably for the last five to 10 years,” the CEO said.
“On our book alone, about 16 per cent of new lending is going to first home buyers. Traditionally, that was about half that amount. So, first home buyers with low interest rates are finding it cheaper to actually buy as long as they’ve got a deposit. And the government’s been very helpful there – it’s cheaper to buy than it is to rent because interest rates are so low.”
Speaking to Smart Property Investment, Atlas property group’s director, Lachlan Vidler, said there was a noticeable uptick in first home buyers and first-time investors.
“Their fear of missing out has made FHB make the jump to ownership earlier than they may have liked, due to fears of being priced out of the market in perpetuity,” he said.
“Similarly, first-time investors are seeing the quality returns (capital growth and rental return) that can be achieved from property and the reduced volatility compared to assets like shares, particularly during economic downturns like COVID-19.”
Metro exodus continues
NAB’s CEO pointed out that buyers are increasingly looking to purchase within one hour of major CBDs.
The exodus from metro areas has seen buyers take advantage of working-from-home arrangements, swapping inner-city apartments for larger freestanding dwellings.
“We’re seeing a big trend of people moving out of the city, and house prices out of the main centres are going up much higher than those in the inner city,” Mr McEwan said.
Despite rising house prices, the head of the big four bank still does not believe the RBA will be looking to lift rates in the near term.
“Look, I think rates are going to stay low for the next two to three years. The Reserve Bank is pretty determined to keep them low for 2022-23, and I think that’s going to be the case,” he said.
Instead of lifting rates, the CEO believes the RBA and regulatory providers could take the heat out of the market through curing mortgage lending.
“Well, we’ve been making sure that we haven’t been loosening out on the strings of how do you get a home loan. And I think what my chairman is saying is that if this keeps going, he may see the RBA actually stepping into the marketplace and curbing certain parts of it. You’re seeing this happening in New Zealand at the moment. I’m not saying it’s going to happen, but there is a chance that if they see that,” Mr McEwan said.
Mr Vidler’s top tips
And while the market is said to favour first home buyers, Mr Vidler has a few tips for those looking to buy:
- Ensure that you are flexible with your property requirements so that you have the best chance of competing in the current market where there are large numbers of would-be purchasers for a very small pool of properties (particularly places like Sydney).
- Make sure all of your pre-purchase administration is completed and in a timely fashion – e.g. pre-approval, purchasing structures, building inspections etc.
- Don’t be afraid to look to the left and right of your desired suburb – if you’re being consistently priced out, it can sometimes be better to move 10 minutes down the road (so long as it still meets your desired lifestyle) rather than not be able to get in at all.
- If the process is becoming too hard, such as spending whole weekends at inspections/auctions and missing out on properties you love, engage an expert buyer’s agent like Atlas Property Group who can take all the stress out of the process, while giving you back time and energy to spend on other areas of life.
Source: https://www.smartpropertyinvestment.com.au/research/22593-fhb-surge-as-it-s-now-cheaper-to-buy-then-rent-mcewan, Cameron Micallef, 21 April 2021