Mortgage brokers say the record-low interest rates of just 0.75 per cent will see borrowers borrow more for their mortgage despite debt risks and economic uncertainty.
According to buyer’s agent Stuart Jones, based in Sydney, property buyers can now borrow around 15 per cent more than they could 12 months ago.
Mr Jones is from Rose & Jones and says it’s now up to buyers whether they want to go ahead and borrow that extra amount.
“My prediction based on 22 years of doing this and the impact of interest rates on other cycles with boom characteristics, is that this 15 per cent extra borrowing capacity will be completely consumed by the borrower,” he told Australian Financial Review.
“And that’s going to parlay into 15 per cent price growth.”
Mr Jones says he is seeing buyers heading back to the bank for more money chasing properties outside their budget and warned they should stay wary.
“Buyers should not worry about missing out,” he told AFR.
“What they should be concerned about is what can they actually afford. If they lose their job will they be able to sell their property?”
Mortgage broker Justin Doobov from Intelligent Finance believes despite the three recent interest rate cuts, borrowers’ lending capacity will only slightly improve because of ongoing loan scrutiny from banks.
“The amount the bank will lend has improved by about 5 per cent,” he told AFR.
“While the lower interest rates, lower assessment rates might improve a borrower’s position, how the lenders are now weighting living expenses is probably balancing that back out.”
Mr Doobov also warned borrowers to exercise caution in the market, saying the low interest rates gave an indication of the economy’s fragility.
“”I do remind people that money is cheap, but you’ve got to make sure you can keep your job,” he said.
“And if you’re self-employed, you got to make sure your customers will keep buying from you…if you don’t have income coming in it doesn’t matter how cheap it is, you won’t be able to afford the repayments.”