The ‘magic’ mortgage rate to get buyers back in the market

Interest rates would need to be cut five or six times to motivate buyers back into the property market, with younger Australians likely to purchase sooner.

The RBA will meet next week, with most analysts ­expecting the first 0.25 per cent cut to the cash rate in this cycle.

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Interest rates would need to be cut five or six times to motivate buyers back into the property market, with younger Australians likely to be tempted sooner.

Research from Great Southern Bank, which involved a survey of 2000 Australians, shows that if mortgage rates were at 5 per cent, 12 per cent of Australians would look to buy a home, with a further 8 per cent considering purchasing an investment property.

The research shows that the number of people tempted into the market soars as rates fall, with 28 per cent saying they would buy a house and 23 per cent consider purchasing an investment property if the mortgage rate fell to 4 per cent.

The survey come as the Reserve Bank prepares to meet next week for the first time this year, with the majority of analysts ­expecting the first 0.25 per cent cut to the cash rate in this cycle.

AMP chief economist Shane Oliver expects the market to see a “sustained boost” in buyer interest from three or four cuts, ­although he anticipates up to five reductions over the next 18 months.

“People will get out there, and those who are struggling with their mortgage will feel relief. But it’s not going to be what we’ve seen for the last 30 years, wherein each new down cycle we get a huge boom in prices off the back of it,” he said.

The average standard variable mortgage rate last week was 7.06 per cent, according to banking comparison site Canstar, while the lowest on offer was 5.88 per cent.

The Great Southern Bank survey found that at a mortgage rate of 5.5 per cent, one in 10 of Generation Z – aged up to 28 – were interested in buying a home, more than double the appetite of any other generation.

However, at a mortgage rate of 5 per cent, 19 per cent more members of Generation Z and 14 per cent of Millennials – aged between 29 and 44 – would start contemplating purchases, compared to just 9 per cent of Gen X – aged between 45 and 60 – and 5 per cent of Boomers, aged ­between 61 and 70.

Demographer and co-founder of The Demographics Group, Simon Kuestenmacher, was surprised by the interest from the youngest adults, suggesting they may have accepted Australia’s unaffordable housing market.

“They look at public housing policy, which has been completely hostile to them and has been completely hostile to driving house prices down,” he said.

“So they look at this and go, house prices won’t fall. Rates won’t fall. If you want a house, might as well get going.”