RBA: House prices could rise 30% in next three years

author-avatar By on January 18, 2021
RBA: House prices could rise 30% in next three years

Internal central bank documents have revealed the potential effect of continued low interest rates on house prices.

Confidential Reserve Bank (RBA) analysis obtained by a Freedom of Information (FOI) request found house prices could rise by 30% over the next three years. 

The meteoric price rises would be driven confidence in borrowers that the cash rate would remain at its record low 0.1% level over that time. 

RBA Governor Phillip Lowe has stated the cash rate would remain at that level for at least the next three years, as economic recovery from COVID would be uneven and protracted. 

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 19, 2021. View disclaimer.

Should the low interest rate be a temporary measure, and the rate was hiked by one percentage point, house prices would rise by 10% over the three years. 

The RBA noted the effect of the low cash rate was seen mostly in areas where investor activity and debt was high.

"Monetary policy appears to have larger effects in local areas in which housing supply constraints are binding, mortgage debt is higher and there are more housing investors," the report said. 

"Currently, much of the credit growth is coming from owner-occupiers." 

The RBA found high unemployment was the biggest risk to the economy and lower interest rates could help reduce this risk. 

It said as house prices increase, more borrowers would be buying near the price peak, which meant more of the loan book was likely to be in negative equity.

Australia's financial regulators would monitor the risks to the housing market, and the Council of Financial Regulators would step in if needed. 

"Since 2015, lending standards tightened substantially for both housing and commercial property," the RBA noted.

"APRA (Australian Prudential Regulation Authority) and ASIC (Australian Securities and Investments Commission) have both taken steps to reinforce sound lending for residential mortgages in particular." 

House prices have turned a corner recently, rising for three straight months, according to data from CoreLogic, and rose 3.0% in 2020. 

Older people hurt by low rates 

The RBA noted older generations were significantly worse off thanks to low interest rates compared to their younger counterparts. 

With savings account and term deposit rates at dismal levels, older households who rely on interest income will suffer. 

Households with someone aged 65 and over earned more than 20% of their income directly from interest, while for people aged 75-79, interest income was 10% of their gross regular income. 

"Households reliant on interest income are now required to draw down more of their savings than in the past to maintain the same cash flows," the RBA noted. 

However, self-funded retirees and those who owned property would be helped by rising asset prices, as housing accounts for around half of the wealth of households 65 years and older. 


Photo by Michael Amadeus on Unsplash

Disclaimers

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 November 2020. They are (in descending order): Great Southern Bank, 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 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

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

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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