Why waiting for interest rate cuts to buy a home is a bad idea

Maybe you’re holding back on buying a home in early 2024 in the hope interest rates will come down – but it’s a very risky move. 

“Do not wait for rate cuts to make things affordable. If you can get in now, the sooner, the better,” says Mozo finance expert, Peter Marshall. 

He warns would-be buyers should consider property prices alongside any potential rate movements.

Home loan interest rates have been in the spotlight for over a year and a half since the Reserve Bank of Australia (RBA) began to flex its monetary policy muscles back in May 2022. 

Not only have the 13 RBA interest rate rises over the last 15 months brought the cash rate up to 4.35%, but it’s brought those with a mortgage plenty of pain. 

So, if you’re holding off from buying your first home due to the challenge of reading rate movements and the pressure of higher rates on mortgage repayments, you might want to consider why buying now might be the better option.

The interest rate is not the bulk of your repayment 

Marshall believes people forget that the interest rate isn’t the bulk of their mortgage repayments – it’s the principal, or the initial amount of your loan before you’re charged interest. 

This means house prices might pose more of a threat to your affordability than rates. 

Back in December, Domain predicted that an interest rate cut will spark housing demand this year, leading to another upswing in prices. 

Higher house prices mean you’ll likely need a larger loan, thus increasing your repayments. 

“So, purchasing a cheaper property now saves much more money than waiting for a cheaper interest rate,” says Marshall. 

“Don’t wait for property prices to increase more.”

It might be a struggle at first but rate cuts will come

Marshall says that rates will only prove to be a problem for a little while.  

“Rate cuts will come. If you have to max out now and go, ‘Okay, we’re going to struggle for a while,’ you can be reasonably confident that the interest rate on your mortgage will start to drop before the end of this year.”

When, exactly, is a matter of much deliberation. But, the economic brains at Westpac and CommBank forecast a 25 basis-point cut in September 2024, while NAB believes it’ll happen in December. 

A low home loan interest rate is still key 

That’s not to say finding an affordable interest rate now isn’t still important. 

While we can reasonably expect interest rates to drop after rates are cut, the savings won’t hit borrowers’ bank accounts straight away. 

“Usually, it takes banks a couple of weeks to announce rate changes and a month for that to reflect in your mortgage repayments. Homeowners are probably looking at two months after the first RBA rate cut announcement to feel some relief,” says Marshall. 

In the meantime, borrowers can compare home loans to find a competitive rate and keep an eye out for home loan features that might help them save money, like offset accounts for example.

The median variable rate (OO, P&I, $400k, <80% LVR) in our database at the time of writing is 6.47% p.a., but we track variable rates as low as 5.79% p.a. 

So if you’re looking to make the leap and buy your first home in 2024, get your journey started by checking out some of the featured home loans below, or visit our home buying guides for more information.