The cash rate increase by the Reserve Bank of Australia (RBA), which was followed by retail banks’ larger increases, has slashed the number of new home buyers by roughly a third.
In a span of 12 months to July 2011, approximately 90,000 first-time home buyers funded their dwelling, down 40,000 (31 percent) from the past 12 months, according to a report by RateCity.
This works out to a decline of A$11 billion in borrowing.
The only rate hike by the RBA during that period was the rise from 4.5 percent to 4.75 percent in November 2010.
Thereafter, all four major banks followed suit, raising their variable home loan interest rates above the 25 basis points increase by the central bank, with the largest increase from the Commonwealth Bank of Australia, at 45 basis points.
Damian Smith, Chief Executive at RateCity, said elevated interest rates were the biggest concern for first-time home buyers in the 12 months to July 2011.
“Largely because of higher rates, the typical first home buyer is paying A$61 per month more in mortgage repayments than 12 months ago,” he said.
“However, average household income has increased by almost A$3,600 since July 2010, which means that repayments make up about the same percentage of income compared to last year.”
Smith attributed first-home buyers reluctance to purchase to the falling property prices, which saw a national average decline of 2.33 percent from February 2010 to February 2011.
However, he said that the slow mortgage market makes for an opportune time to dive into the housing market.
“If you’ve got a deposit of 10 percent or more, a solid track record of savings, and confidence in your employment outlook, it’s a very good time to borrow,” he said.
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