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Tech & Science First home buyers to suffer from low rates

07:26  27 november  2019
07:26  27 november  2019 Source:   msn.com

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"While first home buyers would have access greater loan sizes than previously, rising home values will necessitate the saving of larger deposits to enter the market." © AAP The Reserve Bank of Australia building is seen in Sydney, Tuesday, October 1, 2019. The Reserve Bank has cut the official interest

Many first -time home buyers combine saving with other strategies to come up with a down Low -down-payment loans, down payment assistance programs and gifts from family can help Down payment assistance is often combined with favorable mortgage interest rates or tax breaks.

The Reserve Bank of Australia's dramatic move to slash interest rates could cause house prices to skyrocket out of the reach of first home buyers, an industry analyst has warned.

Known as "quantitative easing", the RBA has taken several actions to try and stimulate the Australian economy, including cutting interest rates three times in a year to the current level of 0.75 percent.

But a strong economy is not necessarily the golden ticket into property that young people are looking for.

a sign on the side of a building: Established property owners will likely make a windfall off falling interest rates.© AAP Established property owners will likely make a windfall off falling interest rates.

LOW RATES, HIGH PROPERTY PRICES

As IBIS World Senior Industry Analyst Michael Youren explains to 9news.com.au, the side-effect of these measures will most likely see the cost of property jump.

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As Americans spend more money on doing things, not buying things, department stores are losing out. Discount stores like T. J. Maxx, Ross Stores and Burlington are also taking a bigger share of shoppers’ dollars, prompting department stores to jump into the same lower -priced space.

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"A fall in interest rates generally translates into rising property values," said Mr Youren.

"As retail interest rates fall, customers can borrow more money, as the interest costs charged on a loan falls."

McKenna Haase sitting on a bench in front of a building: First home buyers Sam Moorby and Cassie McGilvray are looking to buy their first home this year.© Elesa Kurtz First home buyers Sam Moorby and Cassie McGilvray are looking to buy their first home this year.

FIRST HOME BUYERS TO SUFFER

As Mr Youren explains, the simplest way to think of this mechanism is to picture an auction: if all of the potential home buyers at an auction suddenly had access to more money, they would be more likely to bid more, leading to the property selling for a higher price.

This has the potential to cause tougher conditions for first home buyers looking to enter the market.

"First home buyers are likely to be negatively affected. Rising home values would naturally make it more difficult for them to enter the market," explains Mr Youren.

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Becoming a first -time home buyer can be overwhelming. Or you may prefer an adjustable- rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage. Many home buyers get a rate quote from only one lender, but this often leaves money on the table.

First is Jay Joerger, who cannot close on his purchase in Palm Springs, C.A., because the deal must be approved by the U. S. Bureau of Indian Affairs, which is closed Lower interest rates may attract buyers to the market, especially if there is fear rates will rise shortly after the government reopens.

"While first home buyers would have access greater loan sizes than previously, rising home values will necessitate the saving of larger deposits to enter the market."

a sign on the side of a building: The Reserve Bank of Australia building is seen in Sydney, Tuesday, October 1, 2019. The Reserve Bank has cut the official interest rate to a new record low of 0.75 per cent in a bid to drive up wage growth and reduce unemployment.© AAP The Reserve Bank of Australia building is seen in Sydney, Tuesday, October 1, 2019. The Reserve Bank has cut the official interest rate to a new record low of 0.75 per cent in a bid to drive up wage growth and reduce unemployment.

PROPERTY OWNERS TO REAP THE BENEFITS OF LOW RATES

For every loser, there's a winner: quantitative easing measures may make things tougher for those looking to save for a deposit, but they'll also make it easier for established owners to make a profit.

"Those that already own property are most likely to benefit from any increase in property values associated with quantitative easing," explains Mr Youren.

"Those with variable mortgages will enjoy the benefit of lower mortgage repayments as well as greater returns on their initial home investment if they choose to sell or refinance."

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FHA Loan. Government first time home buyer programs which assists buyers to purchase a home with less-than-perfect credit. Ultimate First Time Home Buyer Guide. 10 Steps To Buying Your First Home . We will guide you through the home buying process, assist you with financing, and connect

Homeownership offers multiple home tax deductions, tax credits and other breaks that aren’t Mortgage points are prepaid interest that can help a borrower qualify for a lower interest rate over “ First -time homebuyers who break into their IRAs to come up with the down payment do not have to

a group of people standing in front of a computer: Traders on the UBS trading floor during the RBA's interest rate cut, in Sydney.© Janie Barrett Traders on the UBS trading floor during the RBA's interest rate cut, in Sydney.

HEADING TOWARDS A NEGATIVE CASH RATE

So how low could Australia's interest rate go? Theoretically, it could go as low as is necessary to stimulate the economy – particularly when conditions are so tough the IMF predicts Australia's growth to be less than Greece.

According to Mr Youren, it is quite likely that we could see interest rates drop below zero, but don't expect Aussies to pay the banks to keep their money anytime soon.

"Economic growth is slowing locally, as it is in many other economies," explains Youren.

"There is the strong chance that we will see a negative cash rate as a part of quantitative easing policy in the near future. However, it is very unlikely that this will be passed on to customers in the form of charges on deposits and payment for loans.

"Instead, the retail interest rates on mortgages will simply fall further and consumers will be able to borrow larger amounts."

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