Why first-home buyers want RBA to hike rates

The Reserve Bank has kept the official interest rate on hold at 2 per cent on Tuesday, yet many first home buyers will have been wishing for an interest rate rise.

This would be the first step to halting the extraordinary price growth that Sydney and Melbourne have experienced in the past three years, which has shut out most first timers.

“First-home buyers would be cheering for a rate rise, at the moment they’re having to save $400 every week just to keep up with prices growth – not to mention saving for a deposit on top of that,” Domain Group senior economist Dr Andrew Wilson said.

But he says for rising rates to have an effect, they would need to “at least” double to 4 per cent to take the heat out of the market.

And even then it would take a year for the downward pressure to be felt, he said.

But he and other experts say rate cuts are some time off.

Angie Zigomanis, senior manager at another researcher, BIS Shrapnel, said increases in the official rate are not expected until late-2016.

Only after these rate rises are prices expected to soften.

“Lower interest rates mean your repayments are lower, but it also means you have to stump up a bigger deposit,” he said.

When the RBA does move to increase rates, prices would eventually start to come down, said Hocking Stuart chief executive Nigel O’Neil.

Yet there may be a lag of several months between the rate hikes and related price drops, leaving short-term opportunities to buy in worse before it gets better.

“Interest rates are at historical lows, so going any lower is unlikely to have much more of a stimulus than already occurring,” he said. 

Cohen Handler buyer’s agency chief executive Ben Handler said rates are exceptionally low and people are willing and able to take on debt, with prices to keep on rising if the RBA doesn’t increase rates.

“An increase in interest rates has the potential to reduce the competition in the property market, thereby increasing the opportunities for first home buyers,” he said.