Why record low interest rates will stop YOU from buying your first home – even though getting a mortgage deposit will soon be easier
- The Reserve Bank conceded record-low interest rates pushing up house prices
- It made admission to Liberal MP Tim Wilson who chairs an economics committee
- Government introducing legislation to establish first home loan deposit scheme
The Reserve Bank of Australia has conceded record-low interest rates could stop young people from buying their first home.
It made the admission as the federal government took the first step in establishing a $500million program to subsidise mortgage deposits for real estate newcomers.
Liberal MP Tim Wilson, the chairman of the House of Representatives economics committee, asked the RBA in August if low interest rates caused property prices to soar.
The Reserve Bank of Australia has conceded record-low interest rates could stop young people from buying their first home. ‘Low interest rates are a factor driving housing demand,’ it told a parliamentary committee
The central bank this week concluded that was the case, with the cash rate now at a record-low of one per cent.
‘Low interest rates are a factor driving housing demand,’ it said on Wednesday as part of a question on notice.
The RBA also conceded record-low interest rates were to blame for Australia’s household debt-to-income soaring to 190 per cent, the second-highest in the world after Switzerland.
‘Over a long period, the structural decline in nominal interest rates stemming from lower inflation and financial deregulation have enabled both higher housing prices and higher household debt relative to income,’ it said.
The Reserve Bank also conceded high immigration had made housing unaffordable.
‘Other factors also affect housing demand, and our assessment is that they have been quite important over recent years,’ it said.
On Thursday, Treasurer Josh Frydenberg announced legislation had been introduced to establish the $500million First Home Loan Deposit Scheme
‘In particular, Australia’s strong population growth has been an important driver of both housing prices and rents in recent years.’
A record 848,570 people moved to Australia in the year to May, marking a 5.7 per cent annual increase.
After departures were factored in, Australia’s net annual immigration rate stood at 294,430 – or a level more than four times the 20th century average of 70,000.
On Thursday, Treasurer Josh Frydenberg announced legislation had been introduced to establish the $500million First Home Loan Deposit Scheme.
Under this program, promised by Prime Minister Scott Morrison during this year’s election campaign, first-home buyers would only need to stump up for a five per cent deposit.
It will see taxpayers subsidise 10,000 first home buyers for the rest of their mortgage deposit, sparing prospective owner-occupiers from having to save up to 20 per cent of the purchase price.
It will be available for singles with taxable salaries of up to $125,000 and couples with a pre-tax income of less than $200,000.
Sydney’s median house price of $877,220 is already more than 10 times an average, full-time salary of $85,000.
A borrower needs to be earning more than $155,000 a year to be able to service a loan without being in mortgage stress.