At it's board meeting today, the Reserve Bank of Australia (RBA) announced a 0.25% reduction in the cash rate from 4.1% to 3.85%. Many economists are forecasting three further cash rate reductions of 0.25% in 2025. The flow-on effect on interest rates is great news for prospective home builders and buyers, as well as homeowners, particularly those with a variable rate home loan. It will also increase people’s borrowing capacity – whether building a new property or refinancing an existing loan. The cash rate set by the RBA determines what banks and lenders pay to borrow money. This is then passed to the consumer through the bank or lender’s interest rates, both for loans and deposits such as savings accounts. In anticipation of cuts to the cash rate this year, many lenders have already reduced their home loan rates over recent weeks. With a lower interest rate, your dream home – be it your first, or an upgrade – is more achievable than ever.

Michael Chadwick, General Manager Home Finance for Clarendon Homes, says there are multiple reasons why it’s a good time for people to start their home building journey.

Lower repayments

“Lower rates mean customers will have lower repayments on their construction and land loan during the construction process,” says Chadwick. “This is an added benefit, especially when customers are typically still paying rent while their new home is being built. It will also increase people’s borrowing capacity – whether building a new property or refinancing an existing loan.”

More borrowing power

Many lenders will now offer more favourable borrowing conditions, which can increase the amount you’re eligible for, whether building a new property or refinancing an existing loan. "Customers buying a house and land package will be able to borrow a little more on their home loan,” says Chadwick. “This can mean having additional funds to make changes to their house plans, upgrade their internal fixtures and finishes or have extra funds for things like landscaping.”

Shopping around

Choosing a lender because you already bank with them doesn’t necessarily mean you will get a competitive interest rate or even the right loan for you. The time is right to compare your options. “Customers should consider searching for a more competitive interest rate to save on their repayments,” says Chadwick. “There is tense competition from all banks at the moment, with many offering very competitive interest rates to lure customers away from their existing home lender.”

Home or construction loan?

Chadwick says that for those looking to build, it’s important to understand how a construction loan differs from a home loan. “Having a home loan for an established property means the loan is fully financed from the point of purchase,” he says. “A construction loan is a bit different. “With this kind of loan, the funding is not released all at once. The lender will fund the loan over a number of stages as the new home is built.” The funds are released by the lender after milestones such as the slab being poured, the framework constructed, brickwork completed and so on, right through to the finishing touches.

Mortgage brokers help customers navigate the thousands of loan products available from hundreds of lenders – with the goal of helping them to obtain a competitive loan that is right for them. These specialists work for customers and not the banks, comparing mortgage features, fees and rates. They help customers with paperwork and liaise with the chosen lender over time. Clarendon Homes’ Construction Finance team, backed by Loan Market Elevate, has one of the largest panels of lenders of any mortgage broker group in Australia, working with Australia’s biggest banks plus more than 60 specialist lenders. From assessing applicants’ borrowing potential to recommending loan options, the team guides customers through the whole process and ensures they move in on time – and what’s more, this service comes at no extra cost. “Our team of brokers have been busy helping customers secure competitive rates with their existing lender or another lender,” says Chadwick, “and then getting the additional benefit of the current rate reduction. “We have been able to help many customers save thousands of dollars on their home loans and helping put them in a much better financial position.” For more information about Clarendon Homes’ Construction Loan Specialists, and for a quick estimate of how much you could borrow, click here.