Stay up to date with the latest developments in the property market over the past month.
The Federal Reserve Bank has announced a fourth consecutive increase to the official cash rate in response to inflationary pressures.
Our video also takes you through an overview of the state of the property market, including a breakdown across all capital cities of the changes in dwelling values over the past month, as well as over a period of 12 months.
Click the video below to view our August update.
With interest rates are on the rise, contact us today to get a better understanding of how market changes will impact your next property purchase.
Investors Choice Mortgages is a trust-based company. We are committed to working with you on financial solutions that will assist you reach your goals. Australian Credit Licence 391985. Make an Appointment: www.investorschoice.com.au/bookacall
The best way to check, is to stress test your household budget and mortgage repayment capacity. Your reality may not be as dire as the media leads you to believe.
The first thing to remember is that when mortgage brokers and lenders evaluate how much they could loan you, they assess your borrowing capacity and ability to service your loan assuming mortgage rate increases. This was tightened by APRA in 2021, requiring all new home loan applications to be assessed at an interest rate at least 3 per cent above the loan product rate.
So, if your income and expenses haven’t dramatically changed since then, you should have a buffer built in. If you have had your mortgage for some years and are ahead on your repayments, or have savings in an offset account, you can also draw on these funds to lower your repayments.
Both our incomes and expenses change over our lives, so whether you took out your mortgage 12 years or 12 months ago, or are saving to buy in the near future, it’s always a good idea to re-visit your budget every couple of years or at a major life event.
This includes checking your home loan interest rate and repayment structure and defining your property goals. This enables you to see if you’re still on the best loan for your circumstances or on track to buy in your chosen area.
A common measure of mortgage stress is when a household spends 30 per cent or more of its pre-tax income on mortgage repayments. However, every household is different, so it’s important to do your own calculations and work out what mortgage stress is for you and how changing mortgage rates will impact this.
One household, for example, may be able to cope with interest rates at 6 per cent while another may find that impossible. Knowing your numbers means you can recognise when you might need to look for help or make changes to your lifestyle as rates increase. The government’s MoneySmart website has a general budget calculator which can help you with accurate budget planning.
You may want to start cutting back on non-essentials before you really have to; streaming subscriptions, cheaper utility and phone deals, and reducing your credit card debt all make a difference and can help you feel more in control.
It’s also important to consider the type of mortgage you have and if it still offers you the best outcome for your circumstances. If you have a flexible mortgage rate, it might be a good idea to look into fixing it, so you know exactly how much to budget for each month. You could also have a split loan that’s part fixed and part flexible. We can help you work out what type of mortgage structure could be best, moving forward.
The other thing to consider is increasing your income by negotiating a wage rise, evaluating a move in your job or starting that side gig you put on the back burner. Even a small increase in income may reduce the need to cut back on non-essentials and stop you eating into savings or any extra mortgage payments you’ve made.
If you’re saving for your first home or interested in an investment property, higher interest rates may reduce your overall borrowing capacity. Most lenders are honouring existing agreed-in-principal amounts, but please get in touch to discuss your current pre-approved amount or what you are likely to be able to borrow moving forward. More than ever, you need to keep up to date with your current buying limit – and stick to it when looking.
The first thing is to contact us. We can speak to your lender and provide advice about your options moving forward. You can also access the government’s free financial counselling service via the National Debt Helpline on 1800 007 007.
Please get in touch if you’d like to discuss your current mortgage in light of recent rate increases so we can work with you to ensure you are able to withstand the changing environment – no matter what the news is telling you.
i https://www.abs.gov.au/statistics/people/housing/housing-occupancy-and-costs/latest-release
One of the most important things you can do if you are contemplating taking that step is to think carefully about the relationship you have with your potential co-owner.
While things are a little more straightforward if you are buying as part of a couple, it’s increasingly common for people to enter into purchases in a wide range of contexts. In fact, a quarter of Australians have considered buying property with a ‘non-traditional’ partner.i This can include buying with a sibling or a parent or parents who are happy to help their children get a foot in the door. Another option is choosing to take the step with a friend or even a consortium of like-minded individuals.
With any of these scenarios there are a few things you need to discuss together and decide upon.
Buying with another or others can be tricky, as there are a lot of decisions to be made about the purchase and it’s essential to make sure you agree on the fundamentals or at least are able to reach a compromise.
It’s a good idea to start by looking at what drives each of you as it’s important to make sure your property goals are compatible.
Your motivations for the purchase underpin a lot of decisions and while it’s quite natural for both parties to have different reasons for the purchase your goals must be somewhat aligned.
Things to consider: Is it a forever home or a foot in the door to enter the property market? How does the purchase fit into your future plans? Is it a home for you to live in or an investment property for you to rent out? Does this represent a tree or sea change or downsizing?
The next step is to think about what you are looking for and make some mutual decisions. It’s unlikely you will always see eye-to-eye on every detail so be prepared for discussion and compromise.
Things to consider: The location, the size of the property, available amenities, the age, and condition of the property. What are your respective ‘must haves’ as opposed to your ‘nice to haves’?
Buying a property is one of the biggest financial commitments you can take on so it’s important to be upfront and honest about your respective financial situations as well as comfort with taking on debt and ability to manage all of the outgoings associated with the property.
Things to consider: Are you able to play an equal role in raising or saving for a deposit or will one party take on a greater share? What will your budget be? How will you manage the repayments, as well as bills and upkeep of the property? Once you have reached an agreement it is prudent to outline the details of the arrangement in a signed, formal document.
There are two main forms of co-ownership agreement: Tenancy in Common and Joint Tenancy.
Tenancy in Common allows you to split your ownership according to the percentage of your respective contributions (such as 50:50 or 60:40) and enables each person to sell, lease or deal with their share of the property as they see fit. Purchasing as joint tenants means that you both own the property, each with equal rights and obligations.
It’s also possible to buy property as a company or even as a trust asset. Each structure has benefits and disadvantages as well as tax considerations, so it’s important to get the appropriate legal, financial and tax advice to ensure you are aware of all the considerations.
Circumstances change and it’s important to think about what the exit strategy might be, well in advance of when that time comes. This would include discussions about the circumstances you would sell the property and how you would value the property i.e. what happens if one party wants to sell the property or rent it out, or even move into a previously rented property.
There are many ways of making joint ownership work for all parties involved but open communication is critical, so get those conversations going. Please reach out if we can be of assistance.
Recently I was on a podcast with Bushy Martin. We chat about my approach to renovating yourself and your wealth.
Recently I was asked to share my experiences of buying my first home with the Herald Sun.
Please get in touch if you’d like assistance finding the right loan for your situation.
Investors Choice Mortgages is a trust-based company. We are committed to working with you on financial solutions that will assist you reach your goals. Australian Credit Licence 391985. Make an Appointment: www.investorschoice.com.au/bookacall
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