First home buyers don’t care much for the cash rate

William Jolly By on October 18, 2019

Photo by Maria Teneva on Unsplash

Home loan interest rates may be falling to new lows each month (or so it would seem), but this doesn’t seem to always have a positive effect on first homeowner activity, according to new research.

Analysis of Australian Bureau of Statistics (ABS) and Reserve Bank (RBA) data from PRD Nationwide shows recent first home buyer (FHB) activity has historically been somewhat independent of recent cash rate movements, although there has been a slight uptick in recent approved loans to first-time buyers.

Previous cash rate movements in 2015 and 2016 actually saw first home buyer numbers go backwards, while FHB activity fluctuated between July 2016 and May 2019 when the cash rate was held at 1.50%.

This, according to PRD’s research, was due to factors such as:

  • Income tax policy
  • Political uncertainty
  • The tightening of lending policies
PeriodCash rateFirst Home BuyersChange in FHBs
(vs previous month)

Source: Australian Bureau of Statistics, Reserve Bank of Australia. Prepared by PRDnationwide Research.

As the data shows, the number of loans to FHBs increased by 1.4% from May to June and a further 1.0% from June to July, when there were two consecutive 25 basis point cuts to the cash rate.

In previous instances where the cash rate was lowered there were actually sizeable falls in the number of FHBs compared to previous months.

For example, the most significant decline in first-home buyers in line with a rate cut was in August 2016, when activity recorded a monthly decline of 1.4%.

The RBA slashed the rate to 1.5% that month, and this was the last time the cash rate was changed until June this year.

“Overall, a further cash rate cut does not guarantee more FHB activity, as it is not the only factor in FHB’s decision making,” the report said.

Source: Australian Bureau of Statistics, Reserve Bank of Australia. Prepared by PRDnationwide Research.

The most recent RBA data for August (released in October) shows a major increase in the number of first home buyers, with the number of lending commitments to owner-occupier first home buyers rising 5.2% month-on-month.

This means the FHB market share is now just over 30% of the housing market – a near eight-year high.

“First home buyers now account for 30.1% of the total market, the highest share since the start of 2012, so continued growth in this segment is important for the broader housing market,” HIA Economist Tom Devitt said following the ABS’s release.

“Given the lag between loan applications and final approval, it is likely that the full effects of recent stimulus is yet to play out in the data and will provide further support to the market as the year progresses.”

Read more: Which lenders have cut rates in October?

First Home Loan Deposit Scheme gets the green light

The First Home Loan Deposit Scheme was passed through both the house of representatives and the senate this week and will kick off on January 1 2020.

The scheme, which will provide a guarantee to eligible first home buyers to purchase a home with a deposit as low as 5%, will support 10,000 first home buyers each year.

Treasurer Josh Frydenberg and Minister for Housing and Assistant Treasurer Michael Sukkar said the passage of the scheme will “facilitate earlier access to home ownership for first home buyers”.

“The Government recognises that saving a deposit has become a more significant barrier to entering the housing market. It can take ten years for the average first home buyer to save a 20% deposit.”

Not everyone approves of this scheme however, with some questioning its effectiveness.

Grattan Institute’s household finances program director Brendan Coates said the scheme is too small to make much of a difference to homeownership rates for first home buyers.

“Because the Scheme is small – the Government intends to offer just 10,000 guarantees a year – it is unlikely to make much of a difference to homeownership rates for young Australians, or house prices,” Mr Coates said.

“It would push up prices, benefitting sellers at the expense of first home buyers, while increasing the risks of inappropriate lending at costs to both households and government.

“Because it costs the budget less, this latest Scheme is less bad than its predecessors. But it shares their critical flaw: it pretends we can make housing more affordable without hurting anyone.”

Looking for a low variable rate home loan? The table below displays owner-occupier products which may represent the best of the big four banks, best of the top 10 customer-owned banks and the best of the larger non-banks. 

Provider Ad rate
Comp rate*
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Low Rate Home Loan w/Offset 2.90% 2.92% $1,665 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
Comp rate*
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Low Rate Home Loan w/Offset
2.90% 2.92% $1,665
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 18 November 2019. View disclaimer.

Investment lending soars

The value of home loans taken out by investors has increased 11.6% in the three months ending August 2019, according to data from CoreLogic.

This is the fastest rate of growth in investment lending since November 2016, although investor activity still remains 43% below its mid-2015 peak.

CoreLogic head of research Tim Lawless said investors have been buoyed by the recent uptick in house prices and the removal of regulatory caps on investment credit.

“More recently, housing market conditions have turned a corner, with values rising across five of the eight capital cities over the September quarter and three of the broad ‘rest of state’ region,” Mr Lawless said.

“Looking forward, there is a strong likelihood that investor activity will increase further.

“The long-term average shows investors are typically around one-third of mortgage demand, implying investors are currently under-represented in the market. 

“As investment activity rises, we could see increased price pressures as this sector of the market tends to be more competitive in setting new price benchmarks.” 


The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in 2018. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers’ products may not be available in all states.

In the interests of full disclosure, and are part of the Firstmac Group. To read about how manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

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William Jolly
William Jolly joined as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.
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