Melbourne rate cut guide: fixed or variable, buy or sell, will prices rise?

Melbourne’s property market has performed differently to the rest of the nation for the past two years, a rate cut is hitting differently here too. Picture: Valeriu Campan.

Melburnians have been warned not to fix their home loan for at least the next six months and to expect an about $23,000 increase in home prices after this week’s interest rate cut.

The city’s burgeoning housing market recovery has been tipped to accelerate after the Reserve Bank reduced interest rates by 0.25 percentage points this week, with the second cut for the year pushing the market back in favour of sellers after years with homebuyers on top.

But with more cuts expected, Smart Lending managing director Melissa Gielnik said unless you truly needed certainty in your finances, don’t fix for the next six months.

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While a 5.2 per cent rate was possible with some loans today, Ms Gielnik said by the end of the year it was likely they would fall to around 5 per cent.

But homeowners shouldn’t be sitting idle, a good variable rate today is around 5.84 per cent — and in the next month that should drop to 5.59 per cent.

If your bank doesn’t match up, she said it was time to call your broker.

This week’s cut also signalled the starting point for borrowers to be hypervigilant for whether their lender was passing the full cut along. From this point on Ms Gielnik said she was expecting more “inequality” among lenders when it comes to passing future RBA cuts on.

If there isn’t one in July, Ms Gielnik said there almost certainly would be one in August.

“Homeowners have done it tough and with everything (the RBA looks at) now moving well, they deserve that relief,” she said.

Reserve Bank governor Michelle Bullock announced a 0.25 percentage point cut on May 20. Picture: Monique Harmer

The RBA’s Tuesday cut is also expected to have big impacts on home savings.

On a fairly typical $660,000, Finder’s head of consumer research Graham Cooke has estimated that along with two more cuts this year a household would save $2553 a year, and $213 a month.

He advised homeowners who could afford to continue paying at the higher rate to do so, with extra payments going to an offset account that would expand savings into the tens of thousands over the life of a loan.

PropTrack economist Eleanor Creagh said Home Price index data since the February rate cut showed a 0.3 per cent increase in Melbourne’s typical house value to more than $900,000, while its typical unit price has risen 1.5 per cent to $588,000 by the end of April.

While too early to be considered a trend, Ms Creagh said the growth reflected Melbourne’s affordability issues — and strong activity from first-home buyers who were more challenged by the higher house prices.

Smart Lending managing director Melissa Gielnik says buyers should wait at least six months.

“First-home buyer activity has been stronger in Victoria than other states,” Ms Creagh said.

“And the growth makes sense given the starting point for affordability.”

The city is in the midst of a turn around, with twice the number of suburbs recording price gains compared to those recording declines in the past few months, Ms Creagh said the coming months were likely to see a broad uptick in prices continue.
“At the point of the February rate cut, Melbourne was seeing one of the fastest accelerations in price growth,” Ms Creagh said.

Across all property types, the past two months have yielded a 0.5 per cent increase, annualised this would reflect a 3.04 per cent uptick in the next 12 months that would add $23,430 to the city’s typical home price.

Ms Creagh said that could be a “reasonable assumption” of what the rest of the year holds, though might prove conservative if rates were cut significantly more than they already had been.

The economist said the result was the market becoming more seller friendly, after a number of years in buyers’ favour, in a trend that would continue this year.

Real Estate Institute of Victoria president Jacob Caine said the cut would support increased activity, with buyers benefiting from more room in their budget, while sellers could be more confident of a sale.

Home owners like those of 33 Adelaide St, Albion, had listed their home for sale in the weeks following the scheduled RBA announcement on May 20, hoping for a cut.

“After a time of negative growth in Victoria, a rate cut in February and another this week would be absolutely the driver for massive increases in competition and substantial property price growth,” Mr Caine said.

However, he did note that the February cut hadn’t led to an instant surge meaning homebuyers “might have a window of opportunity them, maybe for the next month or two”.

However, Ms Gielnik downplayed the odds of a significant jump in home prices, instead suggesting there would be only a “slight increase” as buyers had learned better property research skills during the weaker market conditions of the past few years.

“But first-home buyers will feel like they are better positioned, and be more confident knowing that rates are on a declining trajectory,” she said.

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