PHOTO: Melanie Duca was relieved to buy a home, after months of searching in a rising market. Photo: Peter Rae

Ultra-low interest rates are pushing up property prices, with new figures showing the average home buyer could spend $41,000 more at auction than a year ago.

Interest rates were slashed to boost the pandemic-hit economy and the Reserve Bank this week emphasised it will keep rates low for the next three years even if house prices soar.

With cheaper mortgage repayments, a borrower on an average income of $89,000 who has saved a 20 per cent deposit could have a budget of $806,250, research from comparison website Canstar found.

A year ago, the same buyer would have had less borrowing power and a budget of only $765,000. Both figures assume their home loan was at the lowest variable rate.

 RateEstimated borrowing powerProperty price with 20% deposit
Lowest variable rateMar-20202.44%$612,000$765,000
Average variable rateMar-20203.71%$532,000$665,000
Source: Prepared on 3/03/2021. Average and lowest variable rates based on owner occupier loans on Canstar’s database.

But with crowds of potential buyers turning up at auctions all armed with more cash, a bigger budget is unlikely to translate to an extra bedroom or more desirable suburb.