Surprise way a February interest rate cut could backfire
Homeowners may be welcoming the prospect of imminent mortgage relief, but imminent rate cuts could unleash a hidden force that will affect the cost of living.
Imminent interest rate cuts are expected to launch a tidal wave of home buying activity across the country, with the number of Aussies planning to buy by year-end rising by hundreds of thousands.
And much of that charge is expected to come from frustrated renters who are ditching plans to purchase a home and opting for an investment property instead.
Research from Westpac showed the share of Aussies who indicated plans to buy a home by year-end had risen to 13 per cent, up from 10 per cent at this time last year.
A Westpac release explained this increase would result in “just over half a million more prospective buyers than in 2024”.
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The major bank’s research also revealed interest from first-time buyers in ‘rent-vesting’ has been rising steadily, with over half of would-be first home buyers considering the option.
Westpac’s annual Home Ownership Report showed NSW led the way as the rent-vesting capital of Australia, with 61 per cent considering rent-vesting in the state.
Rent-vesting was also gaining traction in Victoria, with 54 per cent of first-home buyers saying they’re considering it, while in Queensland the proportion was at 52 per cent.
Rent-vesting usually involves buying in a growth market or affordable area, while renting where one wants to live. The intent is often to build equity that can be put towards buying a residence in the future.
Westpac senior economist Matthew Hassan said potential rate moves were a big motivator for would-be buyers in 2025.
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“Interest rates are almost certainly having an influence here. Last year high rates deterred buyers, but the possibility rates will move lower appears to be shaping would-be buyer plans,” he said.
“For rent-vestors the potential rate moves bode well for increased buying power.”
Westpac managing director mortgages Damien MacRae said the surge in rent-vesting interest suggested Aussies wanted to speed up their entry into the market.
“Rent-vesting is growing in popularity as more buyers look to get their foot on the property ladder sooner, particularly in capital cities where housing prices are typically higher,” he said.
“Our research shows that 82 per cent of Australians would be open to purchasing in an area they hadn’t originally considered, as buyers adjust their expectations in response to the market,” he said.
Mr MacRae said the rise in rent-vesting was expected to be coupled with a rise in demand from other buyer types.
“More Australians are entering 2025 planning to purchase a property than last year, reflecting renewed optimism from aspiring home buyers,” Mr MacRae said.
“We’re continuing to see strong demand from customers seeking pre-approval for home purchases across both the owner occupier and investor segments.”
REA Group economist Angus Moore said interest rate cuts would increase competition for housing and may push up prices.
A recent Mortgage Choice Home Loan Report confirmed that home buyers were feeling more confident, with polling showing an interest-rate cut was behind the climate of optimism.
Close to a quarter of those with plans to buy polled by the mortgage group said the interest rate environment was making the more confident, compared to 17 per cent in the September quarter.
The most notable uplift in confidence was among buyers in Western Australia and Queensland.
Mortgage Choice CEO Anthony Waldron said Aussies were still hopeful of buying homes despite affordability challenges.
“Owning a home has long-been the Great Australian Dream, and despite the challenges of getting into the market, our survey shows that Australians still see property as key to building their wealth,” he said.
“When you consider that national home prices have risen over 46 per cent over the last five years, it’s unsurprising that Australians hold such a strong desire to own property.”
Originally published as Surprise way a February interest rate cut could backfire