Rush to buy before being priced out

Victoria is leading the way in NAB’s loan growth, with first home buyer activity climbing 28 per cent, closely followed by Western Australia, up 22 per cent, and Queensland, up 21 per cent.

There are two things at play here. The first is the pent-up demand that has been waiting on the sidelines waiting for rates to move down.

Buyers have been front-running interest rates – with the expectation that there were more to come.

And interestingly, this rush of borrowing took place before the latest interest rate cut in May.

Many of these new borrowers have been sitting in the rental market and saving for a deposit and clearly feel a sense of urgency to get into the housing market before it takes off.

Pugh explained that the rate cut increased their customers’ borrowing capacity, and the May election had also triggered an additional sense of security among those looking to enter the mortgage and housing market.

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But this surge in first home lending, in particular, is the outworking of federal and state government schemes to allow younger people to get a foothold in the housing market.

Various states have introduced schemes to help first home buyers, including stamp duty exemptions or grants, while the federal government policy enables these buyers to purchase with just a 5 per cent deposit without having to pay Lenders Mortgage Insurance.

This interest rate-led explosion in mortgage lending and the expectation that it will spur growth in property prices may not sit comfortably with Reserve Bank boss Michele Bullock, who was adamant that property prices were a function of supply and demand, rather than the Reserve Bank’s interest rate moves.

Affordability has long been a major issue that puts a lid on tear-away price increases, but it doesn’t appear to be kicking in just yet.

To date, house prices have risen to the end of May, and Pugh says they have continued that trajectory in June.

The average Australian home has soared through the $1 million mark for the first time in the three months to March after climbing 1.2 per cent in that period, according to the Australian Bureau of Statistics.

NAB is forecasting another three rate cuts – one in each of July, August and November, which will only add to the ardour for homeownership.

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