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RBA keeps interest rates at record low, fuelling buyer demand

By George Hadgelias

The Reserve Bank of Australia has kept interest rates on hold as buyers scramble to take advantage of record low borrowing costs.

The RBA board kept the cash rate and other key policy rates at 0.1% after its monthly meeting on Tuesday, with its package of measures including government bond purchases lowering financing costs for borrowers.

RBA governor Philip Lowe said the economic recovery in Australia is well under way and has been stronger than earlier expected.

“Lending rates for most borrowers are at record lows and housing prices across Australia have increased recently,” Mr Lowe said in a statement.

“Housing credit growth to owner-occupiers has picked up, but investor and business credit growth remain weak. Lending standards remain sound and it is important that they remain so in an environment of rising housing prices and low interest rates.”

Mr Lowe again said the board will not increase the cash rate until actual inflation is sustainably within its 2-3% target range and it did not expect the required economic conditions to be met until 2024 at the earliest.

Low rates are contributing to higher prices

Realestate.com.au director of economic research Cameron Kusher said record low borrowing costs and enthusiastic buyers, some driven by a fear of missing out, were pushing property prices higher as the volume of stock for sale remained low.

The inaugural REA Insights Home Price Index Report, released on Tuesday, showed a 5.9% increase in dwelling prices over the past year.

Mr Kusher said a lot of people were taking on fixed rate mortgages for less than 2%, while increased savings and restrictions on overseas travel during the pandemic had increased demand for new mortgages. Australian Bureau of Statistics figures released on Monday showed new home loan commitments rose 10.5% to a record $28.8 billion in January.

“The fact that the Reserve Bank has effectively suggested that borrowing costs are going to be this low until 2024 gives people some certainty that they can maybe extend themselves a little bit further at the moment, knowing that as the economy improves and when the RBA eventually starts looking at increasing rates, they’re probably going to be in a better position to get pay rises,” Mr Kusher said.

“There’s probably the realisation that even once we do get to the point of interest rate hikes, households are going to be very sensitive to that so it’s unlikely that the Reserve Bank will be lifting interest rates rapidly,” he added.

Low rates means more home buyers

Government incentives like HomeBuilder, which finishes at the end of March, and first-home buyer grants and discounts are also fuelling the housing market.

RateCity.com.au research director Sally Tindall said record low rates have significantly boosted the amount people can borrow.

“That means people are putting their hands up at auctions for properties they previously might not have been able to afford,” she said.

“Government incentives are also driving sales, along with a fear of missing out, particularly among those yet to get a foot on the property ladder.”

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