The theme here is: Don’t get too focused on the absolute interest rate. Simply being able to buy, and buying well, are where you will make money in the property market at the moment.
Bank credit criteria have made it much tougher to borrow. That said, if you have a good income the money is there even if you only have a small deposit. We can get lending approved all the way to 95% but you will pay more for it! We are doing 95% mortgages at around 0.70% above standard mortgage rates. 0.70% might sound a lot, but the all-up rate is still lower than any of the rates available over the past five years.
The way I see it you have two choices:
Choice 1
- Buy a property now at a great price, and lock in some historically low interest rates (say, 6.00% including extra margin.) That is a great rate and is lower than any buyer over the past five years will have experienced. Why would you let this rate stand in the way of getting the right property at a good price?
Choice 2
- Save a 20% deposit over the next two years and then buy. You won’t have a low-equity premium, but rates will have likely increased anyway so you’ll still be locking in at over 6.00%! In other words, by waiting, you actually haven’t saved anything on the rate and you’ve missed the bottom of the property cycle.
I don’t think either choice is exclusively the right option. It really depends on your view of the world. My rule is if the right deal comes your way, don’t get caught up on the borrowing costs – that’s not where you make your money!
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About us
Squirrel is an independent mortgage broking and advisory business. We are happy to help you get the best out of your mortgages whether that is buying property, refinancing or simply restructuring everything to make it work better. If you are buying a new home then you can apply online with us and we’ll save you a bucketload of money, time and stress. Sign up for our free newsletter and get emailed our latest mortgage advice and insights on the housing market.
JB (author of this blog) is the former general manager (products) at ANZ National Bank and has managed over $15 billion of mortgages.
