Low rates not helping first home buyers

by Julia Corderoy15 Feb 2016
Low interest rates are doing little to help first home buyers into the property market, according to new research.  

The research by HomeStart Finance showed that upfront costs and housing affordability were the biggest barriers for first home buyers wanting to break into the property market. 

“A widely held view is that low interest rates are good for homebuyers,” HomeStart CEO John Oliver said.

“While that’s true to a degree, low interest rates do little to help first home buyers overcome the upfront barriers that exist when looking to buy a home. Low interest rates mean little if you don’t have the deposit to obtain finance for a loan, or if there is a gap between how much you can borrow and the price of property. 

“Although we’ve been in an extended period of low interest rates, unfortunately for many first homebuyers the dream of home ownership is no closer.”

The median house price in metropolitan Adelaide in March 2006 – HomeStart’s headquarters – was $280,000, according to the government-backed lender. In June 2015 the price had increased by $148,250. 

“As prices rise, so does the amount required for a deposit,” Oliver said.

“Loans may be more affordable when there are low interest rates, however this has no effect on homebuyers if they can’t save enough of a deposit to get a home loan.

“Another potential issue of low interest rates is they can increase investor demand, which in turn has been said to drive property prices even further out of reach of first home buyers.” 

Oliver says the other drawback of low interest rates is first home buyers earning less interest on their savings accounts, making it even harder to save for a deposit.