In an uncertain property market, particularly leading into an election, it can be difficult to make the right decision when it comes to property. A rash decision can be detrimental, but also a long drawn out decision can have a similar impact – so how do you know what’s right for you right now?
When it comes to property values and getting into the market, now is actually a good time to buy. Not only are property values lower than this time last year, interest rates are the lowest they’ve been for a very long time.
Everyone wants to buy at the bottom of the property cycle, to maximise their future capital growth, but how do you know we’re at the bottom and what should you know before buying?
Subscribe to statistical property market updates and industry experts – not news feeds with their own agenda
Property insight experts like CoreLogic and the Australian Bureau of Statistics (ABS) provide actual data on the property market and data driven forecasts. Whereas property sales websites such as realestate.com.au or a real estate agency will always paint a pretty picture, as they have an interest in projecting a positive outcome, particularly for buyers. You’ll need to monitor this data on a weekly basis as things move very quickly in the property market. Attend open homes to get an indication on how many buyers are looking. Don’t trust a real estate agent who tells you that buyer interest is high – go and see for yourself. Also ask your mortgage broker for a property report so you can see exactly how long the property has been on the market.
Option 1: Synchronise buying and selling
The old saying of ‘buy and sell in the same market’ is particularly true when property values are dropping, and the market is slow. As you’ll see in Part 2 of this blog series, if you need to sell, try to buy in the same market to avoid any major capital growth loss.
The worst situation is to sell in the low and buy in the high. Whilst nobody has a crystal ball and it’s hard to predict the highs and lows of the property market, keeping an eye on data and industry reports (see point 1) will help you form an educated opinion.
If you sell now in a low, and wait 12 months before buying, you run the risk that property values will increase and the home you want to buy is now more expensive than when you sold your home. The opposite is also possible, but you reduce your risk buy selling and buying in the same market.
Option 2: Hold and buy
If you’re looking to buy an investment property, or new home and already have a property, where possible try to hold on to your original property, particularly in a slow market. Whilst most people want to minimise their debt levels as much as possible, sometimes holding on to a property whilst buying is a good strategy. This situation might be suitable for someone who has a lot of equity in one property that can be utilised to purchase a second property. It might mean that you can keep the existing property with a rental return that covers the mortgage repayments, then purchase a second property as your main residence. Holding property for future capital growth is a great way to expand your property portfolio without having to sell in a low market.
As always, speak with your mortgage broker to find out if this option is appropriate for you.
Research your suburb and know why your buying there
If you are buying your next home, your drivers will be different to that of an investor. Whilst your main priority might be accessible to a local school or transport, always think about why someone else would want to buy that property. Always think about who might buy the property next and how much it will appeal to someone else. For example, a three storey home with a steep driveway and lots of stairs might be fine for a young, fit couple, but will it appeal to someone a little older or with kids? If you are ok with the potential flaws of the property, keep in mind that if you want or need to sell in the future, the value to other buyers might be less than what you thought. Research the suburb and the buyer demographics. For example, the Central Coast suburb of Lake Haven is almost 65% investor owned. So, if you were looking to buy the family home in Lake Haven, you might find when it comes to sell, the buyers are more interested in the rental returns. Therefore, maximising bedrooms and bathrooms will increase the value in the future.
Be wary of developers bearing gifts
When a developer tells you that the suburb is the next big thing or offers a discount, mortgage free for a year or free upgrades… walk away. We have seen many clients look to sell their property at a loss because they were convinced by the developer years ago that the property and location was set for major capital growth. Developers, particularly in Sydney are struggling, because their properties are overpriced, and demand has dropped significantly. Rather than lowering the purchase price (which will affect other properties in the development), they include added extras. Banks are aware of these practices, and often the bank valuation will come in much lower than the purchase price, meaning the buyer needs to put more cash into the purchase. Remember, a developer makes money buy selling properties, by any means possible.
Get pre-approved finance before you buy
You might have heard that credit lending has tightened over the last 12 months. Well, as Sydney mortgage brokers, we can honestly say, it has never been tighter. A variety of elements from the Royal Banking Commission, APRA regulation changes, to the upcoming election have all contributed to banks changing their credit policies to make it harder for people to borrow money. Whilst interest rates are at an all time low, it is harder for people to borrow money.
That said, there are still a lot of lender options and the non-major banks are rising to the occasion. Buyers are now considering non-major banks as they manually assess home buyers finances rather than the big banks automating the approval process. Working with an experienced mortgage broker like Mint Equity will ensure you have a variety of lender options and are guided throughout the whole approval process.
If you are looking to buy and secure a home loan or investment loan, now is the time to tidy up your finances. Pay down the credit cards, reduce the limits as much as possible and get rid of those AfterPay transactions. Banks consider AfterPay a line of credit, so they will include that in your expenses and reduce your borrowing capacity.
Talk to Mint Equity to secure a home loan pre-approval before you go shopping.
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