Rarely has there been a better time to borrow money.
In early November the Reserve Bank lowered the country’s official cash rate to a historic low of 0.1 per cent. The move came as something of a surprise after many experts assumed it had dipped as low as it would get when it bottomed out at 0.25 per cent back in March.
Yet while the cash rate is just a benchmark figure, it’s important because it sets the precedent for the interest rates that banks go on to offer everyday Australians when they are looking for financing.
When tied in with the bonuses on offer as governments move to support the construction industry in the wake of COVID-19, the news is music to the ears of first-time buyers looking to purchase their first home – with apartments, townhouses or villas marked as affordable options.
According to RateCity.com.au more than 40 lenders have so far announced cuts to rates since the RBA’s last rate announcement.
Of these, five have passed on variable rate cuts to their existing customers with 1.88% on a two-year term the lowest fixed rate on the market.
At the time of writing, 31 lenders were offering at least one fixed or variable rate under 2%, with 1.77% the lowest variable rate on the market.
Because banks often reserve their best deals for new home loans, the RBA rate cut means first home buyers have a good chance of ending up with lower home loan repayments when they agree to sign on the dotted line.
It also means all prospective buyers, not just those purchasing their first property, will benefit from paying less money towards their home loan in the long run.
The rate cut means those who have saved a hefty deposit towards their first home may also be able to afford to borrow more as when lenders are working out borrowing capacity, they usually base it on current interest rates plus a small buffer. Typically the lower the interest rate, the more generous they are with their lending.
Perhaps the biggest advantage to first home buyers is that a lower interest rate may mean they can afford to take out their home loan over a shorter time frame. Equally they may be able to afford to put extra money towards their mortgage by taking advantage of an offset account or redraw facility, both of which will allow them to speed up the rate at which they build equity in their home.
State governments are also chipping in, offering a raft of incentives to buyers in the hopes of helping support the future of the country’s construction industry.
In NSW, there is a First Home Owners Grant (FHOG) available of $10,000 for new properties costing less than $600,000 and no stamp duty is payable on properties valued under $650,000, with discounted fees on properties valued between $650,000 and $800,000.
First-timers buyers in Queensland or South Australia can access a FHOG of $15,000 for new properties, with no stamp duty payable on Queensland homes costing less than $500,000 and a discounted rate up to $550,000.
All first homeowners in South Australia pay some stamp duty but there is an off-the-plan concession of up to $21,330 on properties valued under $500,000, as well as discounts for properties valued between $600,000 and $750,000.
Victoria has different FHOG options depending on whether or not the property is based in regional Victoria. Those who are considering buying in regional Victoria can access a FHOG of $20,000, while those purchasing anywhere else in Victoria may be eligible for a $10,000 grant. The home must be less than five years old to be eligible.
Stamp duty concessions may also be applicable.