A Trifecta You Can Bet On

There’s a trifecta happening right now in home loans. With interest rates low, property prices cooling and seven weeks to settle before Christmas, this unique moment in time would have bookies in a frenzy.

| | 7 minute read

With punters gearing up for ‘the race that stops a nation’, it would be easy to miss the other big event that took place this afternoon: ‘the news that stops a heartbeat’ or the Reserve Bank’s interest rate decision.

Here at uno, we were waiting in anticipation for the latter, because hey – we’re in the business of home loans. And while historically, the Melbourne Cup is a popular date for a change in interest rates (did you know that between 2006 and 2011 the RBA moved them for six years straight?), it’s now been six years since the bank made a move in November.

Today, the RBA chose to stay put for a 13th consecutive month, keeping the cash rate at 1.50%.

Which leads me to why we were waiting in such anticipation for the RBA announcement. (Okay, we admit it was kind of fun watching the winning trifecta in the Melbourne Cup and yes, we might have had a champagne in hand.) But to be perfectly honest, there was a better reason to be excited.

You see, there’s actually a trifecta happening right now in home loans.

With interest rates low, property prices cooling and seven weeks to settle before Christmas, this unique moment in time would have bookies in a frenzy. It’s possibly one of the best times in history to consider taking out a home loan.

uno’s chief financial officer, Jason Azzopardi, got pretty animated about it last week, calling it a “property sweet spot”. “Inflation figures last week indicated price weakness except for rising electricity and gas prices, leading to the inflation rate remaining below the RBA target of 2-3%,” he said. “What this typically means is that the central bank would reduce rates to give things a kick along.

“They’re not going to do that in fear of stoking the property bubble further. There’s only one direction they can go from here.”

Azzopardi said almost all economists are tipping two 25 basis point increases at some point next year. But before that happens, there’s a window right now where these three things – low interest rates, cooling property prices and Christmas – are aligning to benefit home buyers and those looking to refinance.

For home buyers: Why now might be the best time in history to consider a home loan

For home owners: Why now might be the best time in history to refinance

Homebuyers, here’s why:

  1. Interest rates are low

The September quarterly growth figures showing weak inflation growth – even with soaring electricity prices – suggest interest rates will remain stable for some time to come. September’s figures were the third strongest in four years at 0.6%, yet the annual inflation growth of 1.9% remained below the RBA’s target range of 2-3%. The reason for this is electricity prices, which rose 8.9% this quarter, according to the ABS.

If it weren’t for rising electricity prices, the RBA would be reducing the cash rate – to boost the economy, which is essentially flat. But for now, the bank’s expectation is that growth in the Australian economy will gradually pick up over the coming year.

  1. Property prices are cooling

According to Domain, this financial year’s clearance rate for houses now averages about 62%, well down from the 72.9% clearance rate over the same time frame last year.

Capital gains across Australia’s housing market have also been losing momentum since moving through a peak rate of growth in November 2016, according to CoreLogic.

National dwelling values remained unchanged during the month of October and conditions were flat across both the combined capital cities and the combined regional areas of Australia, with negative movement in values over the three months ending October recorded in Sydney (-0.6%), Perth (-0.7%) and Darwin (-4.4%).

“Seeing Sydney listed alongside Perth and Darwin, where dwelling values have been falling since 2014, is a significant turn of events,” CoreLogic’s head of research, Tim Lawless said, adding that despite a stronger growth profile, Melbourne dwelling values are also rising at their slowest quarterly pace since mid-2016.

Core Logic Data Nov

Source: CoreLogic

  1. It’s seven weeks ’til Christmas

For houses on the market now, it’s a sure thing their owners want them sold, packaged up and shipped out by Christmas – which is only seven weeks away. “Vendors like to be in the new house for Christmas or settled before school starts in the new year,” says Michael Pickham from Propertunity Buyers Agents.

“Christmas time can be a great time to snap up a deal as sellers just want their house sold. With seven weeks out to Christmas now we’re in a little bit of heat as the vendor doesn’t want the uncertainty of having a property on market over the holiday season.”

With these three things in mind, the time could be ripe to buy a house that has passed in at auction or is failing to attract the excitable bidding that agents rely on to push prices to ridiculously high levels. I should know. My partner and I searched for a home for months, finally securing a property at auction just over six weeks ago – for less than the reserve price.

All in all, it’s the perfect property trifecta.

Want to know more? Read Choosing the Right Home Loan

Home owners, here’s why:

  1. Interest rates are low

The September quarterly growth figures showing weak inflation growth – even with soaring electricity prices – suggest interest rates will remain stable for some time to come. September’s figures were the third strongest in four years at 0.6%, yet the annual inflation growth of 1.9% remained below the RBA’s target range of 2%. The reason for this is electricity prices, which rose 8.9% this quarter, according to the ABS.

If it weren’t for rising electricity prices, the RBA would be reducing the cash rate – to boost the economy, which is essentially flat. But for now, the bank’s expectation is that growth in the Australian economy will gradually pick up over the coming year.

With lenders offering competitive rates and reduced fees, it’s never been a better time to take advantage of them and refinance to get a better deal. Hey, when you look back on this period ten years from now, will you see it as the once-in-a-generation opportunity it was to pay down your mortgage while interest rates were low?

  1. Property prices are cooling

According to Domain, this financial year’s clearance rate for houses now averages about 62%, well down from the 72.9% clearance rate over the same time frame last year.

While there certainly hasn’t been a “property crash”, if property prices were to drop further, it might be harder to negotiate a better rate with your lender as your LVR is likely to increase if the cost of your property drops.

Right now, your debt is a lower portion of the value of the property, meaning it could be the best time to refinance.

  1. It’s seven weeks ’til Christmas

Finally, with Christmas just around the corner, everyone’s looking at ways to save for that much-needed holiday, presents for the kids or a seafood lunch for the family. Last Christmas, uno calculated that the average Sydneysider could save $3408 a year through refinancing. In Melbourne it’s $2532*. Lenders often work to targets and are super hungry to do deals and settle them before the end of the quarter (end of December).

With these three things in mind, now could be a great time to consider refinancing. After all, it’s the perfect home loan trifecta.

Want to know more? Read Thinking of Refinancing? Here’s How to Get the Best Deal for You

* This saving is based on the median Sydney house price of $995,804 and a median Melbourne house price of $740,000, at an 80% LVR, assuming an original interest rate of 4.5% and a refinanced rate of 3.89%.

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Hannah Tattersall worked as a journalist in Sydney, New York and Edinburgh before joining uno as its Content Editor. She has written for The Australian Financial Review, The Sydney Morning Herald, Qantas The Australian Way and In The Black, among other titles, and worked for 21st Century Fox and News Corp. She writes content aimed at buyers, investors, refinancers and anyone interested in the home loan process and welcomes feedback on how we can make uno’s content better for you.

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