Many in the media are saying that the latest interest rate cut makes property more affordable for first home buyers. I disagree.
Let us remember this is the lowest interest rate in over 30 years. Rates are artificially low to stimulate the economy short term. This is not normal or even an average.
So it is fair to assume that over the 25 to 30 year loan term that interest rates will go up again. If you can’t afford the repayments when interest rates go back up (as they will) then buying a house now is a recipe for future financial stress.
The current interest rate only makes a home more affordable if you can fix your rate at current levels for 30 years.
If you still buy even though you can only just afford the repayments now then you are betting that your income will increase quicker than interest rates. Start praying that it does.
The only thing that makes the house more affordable is free cash in the form of the First Home Owners Grant.
House prices will perhaps stop decreasing so rapidly. Lower interest rates reduce the pressure on would be sellers so they will be less inclined to drop the price of their house. It is suddenly more affordable for them to hold on.
Of course you could be really creative and just buy a less expensive house that you could afford.
TIP: calculate your affordability based on the repayments if interest rates are 3% higher than they are at the time of purchase. Then make repayments at that level right from the start.