Can the cash rate affect property investment?

How could the cash rate affect property investors?

On March 2, 2016, the Reserve Bank of Australia announced that the cash rate would remain unchanged at the record-low 2 per cent.

This could be excellent news for property investors, as a low cash rate allows banks to lend while charging less for the loan repayments themselves.

The rate hasn't changed since April last year, and experts are torn on whether the next change will be an increase or a decrease.

What could a change in the cash rate do to a mortgage?

Canstar put together some research on how a different cash rate affects mortgage repayments, and the results could make people think twice about investing in larger properties.

Properties in Sydney may not be so out of reach for investors, even with an already busy portfolio.

Assuming the cash rate was at 4.25 per cent and the mortgage term is 25 years, the monthly repayment amount for a loan of $1 million might be set at $7,258.70. A decrease of just 1 per cent in the cash rate could see the banks reduce the amount you would have to repay on the loan by $632.61 every month because they would have to pay less to borrow money for the loan.

That takes the total monthly repayment amount down to well below $7,000 a month, which could place such a loan into a more realistic bracket for some people. As such, properties in Sydney may not be so out of reach for investors, whether they have a fairly full portfolio or are just turning the first page.

According to the BIS Shrapnel Australian Housing Outlook 2015-18, the median house price in Sydney has risen by 44 per cent over the past two years to $1,034,100. Now, that's only a median, so there will still be half of properties around the city below that value, and half above. In terms of buying, a low cash rate makes mortgage repayments at the higher end of the scale more accessible to more families, and that could open the door up for investment opportunities.

The 2 per cent cash rate is low, and a far cry from the rate of 17.5 per cent in January 1990. Such a rate is far behind Australia now, but a rise may not be. Getting into the market while repayments are based on the current rate will be beneficial and could save you money in the long run.

Where else should you invest?

There are two other major markets at the moment, and a buyer's agent from Cohen Handler could help you into your dream patch of real estate in both cities.

Melbourne is currently exhibiting a median house price of $734,300, which has risen by 28 per cent over the past two years. Not quite at the same level as the Sydney market, Melbourne is not only smaller and less busy in terms of the CBD, but also cheaper and more accessible than its northern neighbour.

The Commonwealth Bank assigns ratings to the Australian states and major cities out of five, with a five indicating an extreme seller's market, a three is a balanced market and a one is an extreme buyer's market. Victoria overall comes in at a four – a seller's market – but Melbourne was a five.

People will be looking at the state of the market and considering selling, which means that more opportunities could be open to investors taking advantage of the low cash rate.

Brisbane on the other hand is ranked at a two, or a buyer's market, which is the same across much of the the Sunshine State. The median house price in the city has increased over the last two years by 10 per cent to $511, 300, which could be a much more affordable option for people looking to get onto the property ladder with less expenditure, and as a buyer's market, it's more likely to be advantageous to those spending the cash.

Contact Cohen Handler today and learn what the services of a buyer's agent could do for you.

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