Brisbane home loan repayments could be slashed by up to $700 a month if the Reserve Bank of Australia cuts interest rates this month, but a reprieve for homeowners could mean a surge in house prices off the back of increased borrowing power.
Exclusive analysis from Compare the Market revealed what each suburb in the river city could save if interest rates were cut by 25 and 50 basis points (bp) on May 20, using median home price data and a starting interest rate of 6 per cent.
The biggest winners would be mortgage holders in New Farm, where the average cost of a house is sitting at $2.87m.
A 25bp rate cut would mean a saving of $367 a month on the mortgage of a typical New Farm house, while a 50bp drop would save $729 a month.
In Gumdale, where the average cost of a house is $2.4m, a 25bp cut would mean a $312 monthly saving, while a 50bp cut would equate to $620 a month off the mortgage bill.
While in Ascot, mortgage holders paying off an average house could expect to save $306 (25bp cut) and $620 (50bp cut) a month.
At the other end of the scale, a property owner paying off a unit in Kooralbyn, where the median price is $316,000, would see a monthly reduction of $40 based on a 0.25 percentage point cut and $80 based on a 0.5 percentage point reduction.
The home at 37a Abbott St, New Farm, is for sale via expressions of interest. Picture: realestate.com.au
Outside of greater Brisbane, a 25bp reduction would mean the monthly saving on a median-priced house mortgage would be $158 on the Gold Coast, $146 on the Sunshine Coast, $73 in Townsville, $82 in Cairns and $93 in Toowoomba.
If the RBA knocks 0.5 percentage points off the cash rate, the monthly mortgage repayment on a typical house would be slashed by $314 on the Gold Coast, $291 on the Sunshine Coast, $146 in Townsville, $163 in Cairns and $185 in Toowoomba.
While those already on the property ladder can expect savings should the RBA cut interest rates, those waiting to get on will likely face price rises.
Compare the Market property expert Andrew Winter said rate cuts would boost borrowing power and buyer demand, which could lead to buyers offering more for property and causing home prices to surge.
“The markets in Brisbane, Adelaide, Perth and Sydney have been extremely resilient, and that’s largely because there isn’t enough supply to keep up with demand,” he said.
“Another round of rate cuts is likely to add fuel to the fire.”
Data from Mortgage Choice showed if someone could borrow the average Queensland loan size of $641,000 today, their borrowing capacity would increase to $658,539 with a 25bp cut.
That figure would go up to $676,835 with a 50bp cut and $715,855 with a 100bp cut.
A homebuyer with a current borrowing power of $750,000 would see that number increase to $837,584 with a 1 percentage point interest rate cut, while someone who could borrow $1m today could take out a $1.116m mortgage after the same cut.
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The property at 174 Crosby Rd, Ascot, is for sale for $1.95m. Picture: realestate.com.au
Mortgage broker Deslie Taylor, or Mortgage Choice Ormeau, said she was seeing clients holding off buying in hopes interest rates would come down.
“They’re thinking they can buy that little bit of nicer home, but what I’m trying to ensure is that they’re financially comfortable enough to afford a home at the current interest rate,” she said.
“I advise them to not overcommit themselves in anticipation rates will drop, instead working to a budget of worst case scenario.
“Interest rate cuts will likely come, but they’ll never go back to what they were.”
Mrs Taylor said many mortgage holders were hopeful for a reduction in minimum repayments so they could indulge once again in luxuries they’ve given up due to the cost of living crisis.
“They’re hoping they can get a bit of their life back,” she said.
“They might be able to get that takeaway coffee again, go out to breakfast or dinner again or get their lashes and nails done.
“I also think there are a lot of people who are restricting the amount they will pay for a home, because they don’t want it to impact their lifestyle.
“They don’t want to be living to pay off a mortgage, as opposed to living and paying off a mortgage.”
Compare the Market property expert Andrew Winter. Picture: Supplied
Mr Winter said while buyers may be anxious to “get a foot in the door” before market conditions became even more competitive, the capacity to borrow more money would not make buying a house easier for most people.
“The main hurdle for most first-time buyers is raising a deposit, which can be extremely challenging when value growth outpaces wage growth in such an extreme way,” he said.
“The good news is there are a number of low-deposit and stamp duty incentives open to first home buyers.
“Saving 5 per cent is a lot more achievable than saving 20 per cent.
“There may be a rush to beat the ‘fear of missing out’ frenzy (but) the best time to buy is when you’re ready.”
A Mortgage Choice Home Loan Report survey found 71 per cent of respondents looking to buy a home were relying on their own savings to help pay their deposit, 13 per cent were using a cash gift from family and 23 per cent were borrowing funds.
A total of 35 per cent of homeowners surveyed owed $250,000 – $500,000 on their primary mortgage, 23 per cent owed $100,000 – $250,000 and 18 per cent owed $500,000 – $750,000.
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