First home buyer struggle a reflection of wealth inequality says RBA Governor

Reserve Bank Governor Philip Lowe has weighed in on the national housing crisis just days before the Federal Government is due to release its 2017 budget, suggesting that high housing costs could continue to reinforce wealth inequality in Australia.

In an address to the Queensland branch of the Economic Society of Australia yesterday, Dr Lowe warned against policy moves aimed at addressing housing problems which would simply add to the demand for existing properties.

“Policies that increase demand are just capitalised into the prices,’’ he said. “You address it by adding to the supply of dwellings and well-located land.”

The RBA Governor also empathised with young home buyers, especially those in the booming Sydney market which recently hit a record median house price of $1.15 million.

“I do understand the difficulty of young people getting into the housing market,” he said. 

“If you come from a wealthy family and you’ve got the bank of mum and dad … that’s fine for those children. But if you don’t come from such a family it’s much, much harder to get into the housing market, and I think that’s a social problem.’’

Without releasing any specifics, the Federal Government has given its strongest hint yet that Tuesday’s budget will, in fact, contain some sort of help for first home buyers, with Assistant Minister to the Treasurer Michael Sukkar emphasising the struggle many young Aussies face in saving for a deposit.

“By the time you save the money for a deposit the market has moved on and now you need 60 or 70 thousand,” he said in an interview with Sky News.

“I think on budget night, I don't want to raise expectations too much, but anyone who is saving for a deposit for their first home will be pleased with the steps by the government.”

Speculation still abounds as to the details of any budget policy move from the government on housing affordability, with recent reports suggesting a special first home buyers saving account may be the preferred alternative to the much-criticised superannuation-funded deposit scheme.  

Dr Lowe also played down the likelihood that interest rates would remain at their current levels, despite the RBA’s decision on Tuesday to maintain interest rates at 1.50%.

“We should not … expect interest rates to always remain this low,” Lowe stated. 

“To be clear, this is not a signal about the near-term outlook for interest rates in Australia but rather it is a reminder that over time we could expect interest rates to rise, not least because of global developments.’’

Four tips for first home buyer success  

Are you a first home buyer looking to get into the market? While we can’t chip in for your home loan deposit, we do have some other pointers to help you on your way.

• Prove that you’re a committed saver. Most lenders have a mandatory genuine savings policy, so you may be required to prove at least three months of genuine saving via a savings account, term deposit or mutual fund.
• Reduce that debt. On top of squirrelling away regular savings, your lender will also be interested in your ability to manage debt - so make sure you’re meeting the monthly repayments on any loans or credit cards you may have.
• Polish off your credit file. Before you apply for a home loan get a free copy of your credit report and make sure it’s free of an issues or mistakes that could hinder your application.
• Test your ability to make repayments. Your home loan repayments are likely to be higher than what you’re paying in rent, so to make sure you’re able to make the repayments run a “test budget”. For six months set aside your projected monthly mortgage repayment (minus rent) via an automatic transfer into a savings account.