Interest rates and you – June 2019
The news from the Reserve Bank of Australia to cut the official cash rate to an historic low of 1.25% is very exciting for home buyers.
This is great news – the cost of owning a home has just decreased! I jumped onto a comparison site this morning and found a non-bank lender offering a variable rate around 3%, that is incredibly cheap money. But that does not mean that you can borrow more money.
Many home buyers don’t know that banks use a much higher interest rate to work out how much they will lend you to make sure you can service the loan if interest rates go up. This is responsible lending.
However, the current assessment rate used by major lenders is over 7%. What we would like to see is a decrease in the assessment rate to a more sensible 2- 2.5% buffer for affordability assessment.
For more on the assessment rate and how it impacts you read my previous BLOG.
But interest rates and borrowing capacity are only a very small part of the home buying journey. If the get the property selection wrong, then all of your hard earned money might be wasted.
It doesn’t matter how cheap the money is, you have to buy the right property.
Here are our top 3 tips for preparing to find a home
1. Get your finance pre-approved – Just going to your bank is not going to get you the best finance deal. Talk to a good finance broker to get access to all of the best lenders, to assess your borrowing capacity and get your financial health in order. Sometimes a little tweaking can improve your borrowing capacity without putting pressure on your ability to make the repayments.
2. Source independent advice – property is a great Australian past time so when you announce to the world that you are in the market to buy a home everyone will offer you their ‘advice’. You will find copious news articles online, ‘expert opinions’ and your family/friends and colleagues will regale you with their advice and wisdom. Even the Uber driver will weight in. But none of these people have an understanding of your unique needs, your situation and your goals. So tread carefully when you seek advice – you really do get what you pay for. Ideally your advice and guidance should be from an experienced buyers’ agent who understands you and looks after your best interests. If your budget is tight, you can get pre-purchase guidance for less than $1000 and this will be an invaluable way to start off on the right foot.
3. Know your compromises – we would all love to live in our dream home, but whether your budget is $500,000 or $5million the reality is we all need to make compromises. Position, Price and Property features are the 3 areas you can compromise on so work out what is negotiable and non-negotiable in these 3 areas.
With your preparations in order, check out our Top 3 tips to kick off your home search.
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To talk about your own plans, contact one of our passionate Property Pursuit Buyers’ Agents.