Homeowners celebrating today’s rate cut decision don’t only stand to benefit from cheaper repayments but could also rake in thousands of dollars in home equity if lower rates boost property prices, according to Compare the Market’s property expert Andrew Winter.
Today’s 0.25% reduction will translate to $105 in monthly repayment savings – more than $1200 a year – for borrowers with an average loan of $660,000, assuming banks pass on the discount.
Mr Winter said cheaper rates, improved buyer confidence, and ongoing supply issues could further inflate property values in parts of the country.
“Homeowners are about to feel a lot better off because not only are their repayments getting reduced, they’re benefiting from an equity boost as well,” Mr Winter said.
“It is important to remember that equity is locked up in your home until you decide to sell, and if you decide to upsize your home within the next year, you may find you end up needing to spend more than you planned, even with the extra equity.
“If you’re still paying down your loan you need to make sure you’re on a competitive interest rate to maximise your savings.”
A survey of homeowners by Compare the Market found over 18% of respondents were looking to sell in the next 12 months. A further 37% said they would consider selling in the next 2-3 years.
Many of the prospective sellers surveyed wanted to downsize, with 29% stating they wanted a smaller and more manageable property, and 18% reporting they no longer needed space because the children had cleared out.
Other buyers will be waiting in the wings to swoop on their empty nests. The next largest group of sellers were looking to up-size with 20% having outgrown their current space and 26% looking for a bigger and more desirable property.
Mr Winter urged buyers to do some research and prepare for a more competitive market this year.
“There’s a lot of support coming on for first-time buyers which is great but it’s still going to be awfully hard to buy because the supply just isn’t there,” Mr Winter said. “Talking to a broker and getting your pre-approval sorted puts you in a good position to start making offers because you know you have the bank’s vote of confidence.
“Anyone looking to upsize to a larger home is in trouble too because even if they do have some equity, they might need to spend a bit more to make the next leap. If you want to buy a bigger second family home this year then I strongly recommend selling your current property before you buy the next place.
“You may find your borrowing power has increased since the last time you checked but remember – just because you can, doesn’t mean you should borrow more money.
“Stress test your mortgage to make sure you won’t be too uncomfortable meeting those repayments. Remember life can be surprising. Jobs change, families grow, sometimes our health can take a turn – when that happens you don’t want to be saddled with too much debt.”
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Notes for editors
Compare the Market is a comparison service that takes the hard work out of shopping around. We make it simple for Australians to quickly and easily compare and buy insurance, energy, and home loans products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.
