Century 21’s Charles Tarbey: Rate cuts won’t fire up house prices

Economists have played down the prospect that interest rate cuts in the new year will turbo­charge the property market.

Century 21 Australia chairman Charles Tarbey

Economists have played down the prospect that anticipated interest rate cuts in the new year will turbo­charge an already rapidly rising property market.

While the Reserve Bank held interest rates at a record low 0.75 per cent on Tuesday, several economists have revised up their rate cut predictions for next year as weaker conditions put pressure on the overall economy.

A 25-basis-point cut is expected in February, with some economists tipping an additional cut by the second quarter of the year, taking the official cash rate to a record low 0.25 per cent.

But the spike in property sales that followed the first two rate cuts was unlikely to occur again, Century 21 Australia chairman Charles Tarbey said.

“I think a lot of people have ­accepted the fact that interest rates are low. If they want to buy, they will buy. It is likely they are already in the market,” Mr Tarbey said.

Two rate cuts in June and July this year coincided with the bottom of the market and peak ­affordability.

This combined with banking regulator APRA’s decision to ease serviceability standards helped to boost the market.

CoreLogic data on Monday showed the national market experiencing positive annualised growth for the first time since 2018. Sydney and Melbourne led the way, with increases of 6.2 per cent and 6.4 per cent respectively for the quarter.

Banks are now offering an ­average variable rate for owner-occupiers on principal-and-interest loans of 3.81 per cent, according to comparison site Canstar. The lowest rate available is 2.69 per cent.

Mr Tarbey reckons the ability to service a loan is becoming increasingly more important than equity. “The one think what will keep it (the market) balanced is that the banks’ lending policies are still fairly stringent, especially for investors,” he said.

Next year, it is unlikely that owner-occupiers or re-emerging investors will find it easier to get credit from financial institutions, who are awaiting ASIC’s updated guidance on responsible lending and outline of the new standards following the banking royal commission.

Mortgage Choice CEO Susan Mitchell said borrowers in the new year would experience a “new normal” in which capacity to service loans would become paramount.

“While serviceability floor rates may have lowered, heightened scrutiny around applicant living expenses and debt to income ratios are likely to continue impacting affordability,” Ms Mitchell said.

“The pendulum has shifted. While we may see some lenders recalibrate their policy after going too far in response to the royal commission, I think it’s safe to say that getting a home loan will continue to be a complex journey for consumers.”

Market commentators believe the anticipated flood of new stock onto the market will work against price gains and help the market plateau.

But AMP chief economist Shane Oliver warns that, should the market continue to climb, the Australian Prudential Regulatory Authority may intervene, either raising the serviceability buffer or introducing debt-to-income ­ratios on borrowers.