URGENT UPDATE: The Reserve Bank of Australia is set to hold interest rates steady at 3.6 percent amidst rising inflation pressures, just ahead of a crucial boost for first-home buyers. This decision comes as the latest inflation data revealed a jump from 2.8 percent to 3.0 percent in August, prompting caution from the central bank.
Economists and bond traders widely expect the Reserve Bank to maintain its current cash rate when it concludes its monetary policy meeting on Tuesday. This cautious approach reflects the ongoing tug-of-war between inflation, soft economic growth, and a strong labor market. Chartered Accountants ANZ chief economist Richard Holden suggested that the bank might have already delivered its final rate cut in this cycle, following three reductions since February that collectively saved borrowers over $270 on average monthly repayments for a $600,000 home loan.
In a parallel development, first-home buyers are about to receive a significant boost. The federal government’s expanded first-home buyer guarantee scheme is set to launch on Wednesday, allowing eligible Australians to enter the market with deposits as low as 5 percent. This initiative is poised to dramatically reduce the time needed to save for a home, especially in Sydney, where property price caps for the scheme have been raised to $1.5 million.
For instance, a couple in Sydney with a combined disposable income of $123,674 will see their time to save for a deposit slashed from more than 10 years to less than 3 years. In other major cities, homebuyers in Melbourne and Brisbane will save approximately 5 years and 9 months, while those in Adelaide face a reduced deposit hurdle of 5 years and 7 months.
However, experts caution against potential downsides. Nicola Powell, chief economist at Domain, noted that while a lower deposit eases initial entry into the market, it could lead to greater overall debt and increased risk of negative equity if property values decline. Moreover, the influx of first-home buyers could further inflate home prices, exacerbating affordability issues.
Housing Minister Clare O’Neil emphasized the transformative potential of the scheme, stating it would empower young Australians to start building equity in their homes instead of merely paying rent. “That’s life-changing,” she remarked, highlighting the emotional and financial impact this policy could have on many.
The rising costs of renting are making the first-home buyer scheme even more appealing. According to Eliza Owen, Cotality’s head of research, shaving just six years off the deposit savings period could save a first-home buyer up to $251,000 in rent based on current median rental prices in Sydney, which stand at $801 per week.
As the situation develops, all eyes will be on the Reserve Bank’s announcements and the immediate effects of the new homebuyer scheme. First-home buyers are urged to prepare for what could be a turning point in their journey toward homeownership. Stay tuned for updates as this story unfolds!
