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New builds are low 'down under'

Jude Buttle

Although interest rates in Australia are likely to be cut next week, the construction of new homes is expected to remain limited during the next few years.

It is hoped that a cut in interest rates will boost the slowing economy and strengthen the housing market, as well as provide some relief to homeowners, particularly those at risk of losing their homes in the current credit crunch climate.

However, a cut of 0.5% in interest rates would only save a first time buyer an estimated $101 per month and unlikely to revitalise the Australian property market.

Next week's cut is only expected to be in the region of 0.25%, whereas experts believe that it would take a reduction of at least 1% to increase customer confidence enough to make a significant difference.

Mortgage costs in Australia are currently very high. On average, mortgage lenders are charging an inflated amount of 2.35% above the country's base rate, which currently stands at 7.25%, meaning that the standard variable home loan interest rate currently averages 9.6%.

Some market experts are suggesting that anyone organising a home loan in Australia may prefer to take out a fixed mortgage rate, which could be beneficial for a short term of two to three years. Many of the fixed rate deals currently on offer have already factored in anticipated interest rate cuts by the Reserve Bank.

So, while the market remains downcast and construction work sluggish, the country holds its breath to see what changes lay ahead, especially those in interest rates.