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After a bumper year across the Australian property market – from the city to the regions – experts are predicting slower price growth ahead. However, with limited supply and low-interest rates for the foreseeable future, real estate will still be a hotly sought-after commodity in 2022.
National dwelling values were up 0.6 per cent in February, rounding out a 2.7 per cent increase for the quarter according to CoreLogic’s monthly Hedonic Home Value Index.i February marks the slowest growth since October 2020, with Sydney recording its first decline in 18-months.
Coast and county price growth continued to outpace that of the cities with the combined capitals reporting a modest rise of 1.8 per cent while the combined regions jumped 5.7 per cent in the three months to February 28.
While no commentator can guarantee how property will perform in 2022, one thing is certain according to REA Group senior economist Eleanor Creagh – 2021 finished very differently to how it started.
REA analysts expect new listings to remain elevated during the start of 2022, as would-be sellers respond to strong price growth. February saw the busiest auction week since Core Logic records started in 2008.ii And with more homes on the market, there should be a better balance of supply and demand to calm down skyrocketing prices.
In addition to this, the Australian Prudential Regulation Authority’s changes which took effect late last year are also having a subtle impact, reducing the borrowing capacity of new buyers.
During the three months to February 28, the Victorian capital has seen a 0.2 per cent rise in the median dwelling value to $799,756. Melbourne’s rents increased by 4.6 per cent (houses) and 5.5 per cent (units) annually while the gross rental yield for the city was 2.8 per cent.
Over the quarter the Harbour City experienced a median dwelling rise of 0.8 per cent to $1.116 million. The annual change in rents for Sydney was up 8.7 per cent (houses) and 8 per cent (units). Sydney’s gross rental yield was sitting at 2.4 per cent.
Home values in Queensland’s capital had a significant jump of 8.3 per cent during the quarter to reach $706,594. Over the year, rents rose by 11.3 per cent (houses) and 6.5 per cent (units) and Brisbane’s gross rental yield was 3.6 per cent by February’s end.
The nation’s capital saw a surge in the median dwelling value of 3.7 per cent to $906,529. In a 12-month period, rent in Canberra jumped 9.7 per cent (houses) and 6.8 per cent (units) while the gross rental yield was 3.8 per cent.
By the end of February, the West Australian capital had a 1.2 per cent increase to dwelling values taking the median to $531,243. Perth’s rents were up 7.8 per cent (houses) and 6.7 per cent (units) over the year and its gross rental yield was 4.4 per cent.
After a rocky ride for city units in 2020 and 2021, apartments could be back in favour for 2022. “The reopening of international borders and subsequent return of skilled migrant workers and international students is likely to see increased demand for inner-city rentals,” Ms Creagh said.
With investor activity picking up in the latter half of 2021, there is increased demand for units. REA Group reported a two-year high in investor enquiry to real estate agents via their realestate.com.au portal.
APRA’s increase to the serviceability buffer – coupled with the fact investor loans typically have higher interest rates – means affordability could impact investors more than owner occupiers thus pointing them towards units.
Despite the RBA Governor Philip Lowe repeatedly maintaining throughout the pandemic, that the official cash rate wouldn’t move until late 2023 – at the earliest – there is now speculation a rise could come much sooner.
If you would like to discuss your borrowing power or refinancing for 2022, get in touch with us today.
i CoreLogic’s Regional Market Update: https://www.corelogic.com.au/news
Note: all figures in the city snapshots are sourced from: CoreLogic’s national Home Value Index (March 2022)
ii https://www.corelogic.com.au/news/busiest-february-auction-week-corelogic-records-commenced-2008
Many of us have seen our home’s value grow significantly over the last few years. This could mean that your equity is now large enough to put to a new use. So, whether you’re looking to renovate, invest in property or splurge on the holiday of a lifetime, the equity you have in your home can open up exciting possibilities.
Let’s look at ways to release it and some important things you need to keep in mind.
Home equity is the difference between your property’s current market value and the amount you still owe. To keep a financial buffer in place that helps protect your home, most lenders will only let you access 80% of your equity. Say your home is currently valued at $800,000 with $200,000 still owing on the mortgage. Your equity is $600,000 but lenders will generally only allow you to access up to $440,000.
As with any loan, when deciding how much equity to release, lenders will look at your income, expenses and all your debts as well as the value of your home. If you’re using your equity for an investment property, then the amount of rent and overheads for that property are also taken into consideration.
Depending on your loan and lender, your equity could be released as a drawdown or redraw facility, a line of credit loan or via an offset account on your existing mortgage. And if your lender won’t approve an equity loan, a mortgage with a second lender may be a possibility. All these options come with different interest rates and conditions, so it’s a good idea to take the time to assess which suit your plans and circumstances, including if restructuring your mortgage is necessary.
Once you know how much equity you can access, it’s time to choose what to do with it. You can build up your asset through renovations or look to invest the money in either shares or an investment property. Reviewing and accessing your equity could also provide you with opportunities to explore, for example consolidating your debts or buying a new car, realising a passion project like that extended road trip or offering a source of income during a career break.
Whatever you decide to do with your equity, you’ll need to show the bank you can afford the repayments on the full loan amount, which in the case of an investment property, will include both the original and new mortgages.
When buying an investment property, lenders often allow up to four times the amount of your usable equity. So, if we look to our previous example, the usable equity of $440,000 means you could, in theory, spend up to approximately $1,700,000 on a property, inclusive of stamp duty, legal fees and other costs.
However, this is subject to you demonstrating you can afford the repayments on both mortgages. Lender calculators can give you a rough idea of what your investment repayments would be.
While releasing equity in your home frees up capital, it does mean you are increasing the size of your loan and can carry risks, particularly when reinvesting. It’s also important to note that your equity does also depend on the value of your property and property values do fluctuate and can decline significantly. One of the main dangers is extending your financial position to a point where you can no longer service the monthly repayments. This would put any new investment, and even your home, at risk of repossession by the lender.
The current talk of interest rate rises makes it especially important to assess the amount of equity release you can realistically afford going forward. And please remember that all loan application decisions are recorded on your credit file and influence your credit rating. It’s another reason to discuss your options and work out exactly what you are likely to be approved for before applying for any equity release.
To find out how much equity you can realistically release and discuss your plans, please get in touch. We can work out a strategy to help you achieve your goals.
Starting a family, whether it be taking those first steps of planning or knowing your baby is on their way, is exciting – and expensive. Before you start thinking of paint colours for the nursery, it’s wise to understand the costs involved in raising a child.
While there’s no set cost to raising a child, with many variables to take into consideration, a University of Canberra study found it costs a middle-income family $812,000 to raise two children until they leave home.i
Even before your child enters the world, there are costs. If you choose the public hospital system (which three quarters of pregnant women in Australia do), you won’t be out of pocket much but there can be some expenses, such as paying for additional ultrasounds and medications.ii Private hospitals are estimated to cost anywhere between $2,500 and $20,000 with private health insurance.iii
You will need to buy baby furniture and a car seat, and there will be the ongoing costs of nappies and clothes to keep in mind. Other factors, such as whether baby is formula fed and how soon you introduce food, will also impact your finances – some of these can be planned for, while others are more challenging.
If this all sounds a bit daunting, remember that there is financial support available. Depending on your/your partner’s work situation, you might be able to access paid maternity/paternity leave.
You might also be eligible for the Australian Government’s Parental Leave Pay, an 18 week payment at the minimum wage, which the primary carer receives after the birth of the child. There is also a Dad and Partner Pay, a payment for up to two weeks, also at the minimum wage and a Child Care Subsidy which is paid directly to your providers to reduce the amount you pay, should you be eligible.
Whether you have an existing budget or this is your first time creating one, you will need to take into account your growing family. Consider your living expenses and mortgage or rent, and whether this will cover your family or not – will you need to renovate or move in the near future?
Also take into consideration childcare costs. It is estimated that an average-earning Australian couple with two young children spend around 17% of their income on full-time childcare.iv Budgeting for future childcare costs will mean these won’t take you by surprise and it can help you make decisions around work and childcare arrangements.
And while your focus might be on the immediate future (and therefore a newborn baby or toddler), don’t forget to plan for the ongoing costs for your growing child. Of course, there are things you can’t plan for, but you can still think ahead.
When it comes to deciding on public or private education, you can use the Cost of Education Calculator to get an idea of how your finances will be impacted. This can then be taken into account in your family budget.
When your family expands, it is a good time to update your will. While not a topic many of us want to dwell on, thinking about what would happen to our family when we are no longer around is important – you will want them to be taken care of.
Once children come on the scene, the need for life insurance is even greater. If something were to happen to you or your partner, then the financial burden could be significant. Who would look after the children? Could they stay at the same schools? Could your partner pay the mortgage on one salary?
Income protection, life insurance, trauma insurance and total and permanent disability should all be considered. Once again, it’s important to make sure both partners are covered – even if one isn’t working, the costs associated with childcare and household tasks can be considerable.
This new chapter of your life, whether it is beginning or in the planning stage, is an exciting and special time. By planning as best as you can, you’ll make the transition smoother when it comes to financial matters. We’re here to help, so reach out for advice.
i https://www.moneyandlife.com.au/family-and-life-events/what-does-it-really-cost-to-raise-kids/
ii https://www.abc.net.au/everyday/the-cost-of-childbirth-and-the-hidden-bills-to-prepare-for/10350778
iii https://www.pregnancybirthbaby.org.au/the-role-of-your-obstetrician
Stay up to date with the latest developments in the property market over the past month.
Our video 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.
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 to committed to working with you on financial solutions who will assist you reach your goals. Australian Credit Licence 391985. Make an Appointment: www.investorschoice.com.au/bookacall
Even with the varying degree of lockdowns experienced across Australia in 2020 and 2021, the world remains largely at our fingertips. In fact, through the pandemic the use of our phones or computers to organise dinner, groceries, shopping, and workout programs only increased.
Technology has undoubtedly enabled greater convenience in our lives. However, it’s important to recognise that convenience may come at a cost. It’s worth asking yourself if you would you still opt for the convenience if these costs were known up front?
We know that convenience often comes with an additional price, whether that be delivery fees to have that item arrive straight to our door rather than battling the shopping centre car park, or paying for an Uber on that night out rather than catching public transport.
With many of us living busy lives, home cooking is often what falls off our priority list – stats show that Aussies spent $2.6 billion on food and drink orders through food delivery companies in 2021.i
And shopping has never been easier; with a few clicks you can purchase items at any time of the day or night, no matter where you are. Pre-pandemic stats from Australia Post show that 40 million parcels were delivered in December 2019, and with many housebound due to restrictions the following year, in November 2020 online shopping had grown more than 45% year on year in Australia.ii,iii
Convenience often gets prioritised over cost, yet when you do the sums, you may be shocked to know how much you are paying for this privilege. You might have the sinking realisation that all those Uber trips or Deliveroo dinners may have been better spent paying off your mortgage or going on holiday.
Yet that doesn’t mean that convenience needs to be abandoned for the sake of frugality. The key is to recognise where it adds value.
For instance, shopping online may come with an extra cost due to a delivery fee, but it saves you time and stress facing the crowds at the shops. An online fitness program is more expensive than simply running around the block or investing in dumbbells, but it can keep you motivated and more likely to meet your goals.
It’s worth thinking about what will add to your life as well. Putting time aside to cook meals can be a worthwhile pursuit – it can bring the family together or give you some solo time to unwind – or it could add to your stress. Understanding what fits in with your lifestyle will help determine whether you’re better off making your own meals or ordering them in.
Consider what is important to you. If you want to improve your health by eating wholesome, fresh food, being on a first-name basis with your local fish and chip shop is at odds with that. Visiting a farmers’ market on the weekend, where you can select your own produce, will suit you better than doing a big grocery shop online.
Logging what you spend will make what you’re paying for clearer, which will help with comparisons. If you get takeaway three times a week, how much would you save by replacing even just one meal with a home-cooked alternative? Would the amount you pay for registration for the second car you barely use be better off spent on an e-bike?
There are many expense trackers you can use, such as Mint or Pocketbook, to help keep track of how much you are spending and on what. Once you have the figures, look for alternatives for things that aren’t bringing you the value you would expect.
If the money being spent isn’t adding satisfaction or making your life run more smoothly, you’re not paying for convenience – you’re paying for something you don’t need. By streamlining your expenses, you will not only save money but add to your life’s contentment with conveniences that make a difference.
i https://www.moneyaustralia.net/uber-eats-statistics/
iii https://auspost.com.au/business/business-ideas/selling-online/delivering-online-shopping-boom
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