10 September 2022

Hope for first home buyers despite RBA's shock and awe campaign

| Ian Bushnell
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Housing development

First home buyers are still active despite the interest rate hikes. Photo: Michelle Kroll.

The Reserve Bank’s blitz on inflation with the steepest interest rate rises in decades may be the shock treatment the economy and a super hot property market needs, but in Canberra, it’s not first home buyers who are shying off.

Mortgage broker Clarity Home Loans CEO Managing Director Mark Edlund told Region that in the new borrowing and market environment, it was upgraders putting their plans on hold, not those desperate to get into a home instead of paying sky-high rents.

But Mr Edlund advised caution in this rising rate cycle, telling borrowers to leave something in reserve so they could meet higher repayments.

“Don’t borrow the maximum,” he said.

“Think about your ability to make repayments even if rates go up another one or 2 per cent and work backwards from that. So if today we can get your loan at 3.5 per cent or 4 per cent, if it’s at 6 per cent, can you still make the repayments and work backwards from there?”

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Mr Edlund said people should not be blinded by desire but be guided by logic, their budget and capacity to pay.

The upside was that there was now a buyers’ market in Canberra.

“Your ability to negotiate and secure a deal on your terms and with your settlement timeframes is probably stronger today than it’s been in the last 10 years,” Mr Edlund said.

It is also easier to get a loan as lenders loosened their credit policies after the COVID tightening, and the turnaround time was only one or two days.

Mr Edlund said it could be expected that first home buyers would be more cautious and reticent, but Clarity was not seeing that.

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He said that the market was certainly a bit quieter than it typically was in September or late August, but first-home buyers were still relatively active.

“I think they just want to get into the market,” Mr Edlund said.

That was being driven by high rents and the lack of available properties in Canberra to rent.

Many homeowners wanting to upgrade were now prepared to wait out the rates cycle or for prices to fall further.

While there was uncertainty about when rates would peak, Mr Edlund urged people to take a long-term view and appreciate the unique nature of the Canberra market, which has always been underpinned by the public service and high incomes.

“We’ve been a very unique and isolated market because of our make-up, and I don’t think the peaks and troughs are going to be anywhere near as dramatic as Sydney or Brisbane or Melbourne,” he said.

“And with property, it’s about the long-term view. If you want to hold it for 10 years and it goes up by 20 grand or drops by 50 grand in the next 12 months, it doesn’t matter.”

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Mr Edlund said not many people would have seen the kind of rates climb now underway, but they were rising from an ultra-low base.

“This relatively low interest rate cycle we’ve been in for the last four years is an anomaly,” he said.

“When I look at my 24-year career, they’re generally hovering over 5 or 6 per cent. But the concern for people is how far is it going to go and what does the RBA have to do curtail inflation?”

But he said it had been the uncharacteristic speed of the interest rate increases that had people worried.

“Every month, bang, bang, bang. It’s a bit of a kick for everyone,” Mr Edlund said.

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Capital Retro3:39 pm 10 Sep 22

I disagree that Canberra is now a buyers market. It may be for new home units as there is an oversupply of them. Then again, the main buyers of these are first buyers and these are the only people this government “cares” about and it is still throwing full taxpayer funded stamp duty concessions at them.

However, those wishing to build a new stand-alone home on a block offered in the new suburbs are finding it almost impossible to negotiate a fixed price building contract due to the continuing rise in the cost of building materials so they are also considering recently renovated homes in established suburbs as they are being offered with a fixed price if they do not sell at auctions and auction clearance rates last weekend were very high.

The people who are at greatest risk from rising interest rates are the ones that owe the most. No prizes for guessing who they are as we underwrite them, eventually.

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