The Reserve Bank's decision to cut the interest rates to a record low of 1.5 per cent is definitely welcomed by heavily indebted households, but many first home buyers are also wondering about the impact that this news has on their prospects of buying their first home.
On one hand, they could definitely benefit from the housing growth slowdown. According to a statement released by RBA governor Glenn Stevens, "Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished."
It is important to note that the slow housing growth is brought about mainly by regulatory issues. The Australian Prudential Regulatory Authority has placed a 10 per cent cap on how quickly banks can increase the size of their investor mortgage books.
But the basic question that first home buyers should seek to answer is, what kind of premium are they willing to pay to own a dwelling similar to the one they've been renting? With rents across most of Australia either stagnating or falling, many are choosing to continue renting, basically because of the high premium of buying their own home even in the most far-flung suburb.
Hence, being able to borrow more and bid more against investors is not much of a relief to first home buyers. The current tax laws are mostly geared toward protecting older and wealthier Australians rather than first home buyers.
In the end, it is up to the young Aussies to decide whether they want to jump into the overheated property market despite the risks or simply resign themselves as part of 'the rental generation.'
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