Category Archives: Interest Rates

BEST TIME TO BUY IN FIVE YEARS

2019

What is really going on in the market? When is the best time to buy? Should you wait a little longer? The burning questions every Perth buyer has can easily be answered.

Before we delve into those questions, we sat back and thought about the market and real estate and what it really all means. In Australia, most properties are seen purely as investments. Sure, we want our homes to suit our needs but money and return on investment always seems to be the driving factor in determining where “home” will really be. When we think of a home, we think of a private place to express ourselves, we think of a sacred space, a place to make memories with our families and a place where we can truly be ourselves. Irrespective of the market, it is important to differentiate between a home and a property.

Now, let’s get on to the market! Due to the decline in housing values over the past five years, Perth properties are now more affordable whether you’re a first home buyer, a growing family or a downsizer which means this is an excellent time to buy. A mistake many buyers are at risk of making is choosing to hold off a little longer to see if prices further decline as there are absolutely no indications that this is going to be the case. If anything, a steady rise is predicted and no one wants to get their proverbial foot into the door of their new home when prices are on the up.

The latest Buy-Rent Index compiled by Curtin University and the Real Estate Institute of WA is further evidence of this.

The Buy-Rent index attempts to measure when it is more financially advantageous to buy rather than rent.

REIWA president Damian Collins said the index showed median house prices in Perth would only need to rise 2.9 per cent annually over the next 10 years for house purchases to be considered more financially viable than renting.

“This bodes very well for Perth buyers, considering the 15-year annual average house price growth rate is 5.1 per cent,” Mr Collins said.

Getting back to the upsizers and downsizers, there is a valid strategy which should certainly be considered. Buy now and secure your dream home or location with the aim of renting the property out for a few years and then move in when you’re ready. It’s a great way to get what you want whilst pocketing some extra cash.

When it comes to the main driving force behind the reviving market, growing families are leading the way due to the affordability in popular suburbs which are seen as upgrades or dream final destinations. The stigma around subject sales is certainly one which needs to be broken. If you are in a position where upgrading means you would have to sell your current home and you’re letting the fear of your potential sale price hold you back, it’s important to assess the saving and investment potential of your desired new home and analyse the benefits versus losses.

With the differential between the low, middle and high areas of the market decreasing, now is the time.

Statistics sourced from thewest.com.au

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INVESTMENT LENDING

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Our most recent blog post was dedicated to everything you need to know about owning an investment property, what we didn’t touch on was the lay of the land when it comes to investment lending in today’s financial climate.

To get an experts insight on the subject we sat down with our favourite Finance Specialist, Terry Gardiner of Money Quest. Terry spoke to us about the Interim Report from the Financial Services Royal Commission (you’d have to be living under rock if you’ve managed to escape hearing about the Royal Commission) which was recently released however he did note that since then, there have been many changes to investment lending which have significantly changed the investment lending landscape.

As a result, many individual banks have applied policy changes including: –

  • Variations to lending ratios for investment properties
  • Variations to interest rates applied
  • Introduction of the requirement for borrowers to ensure they commence principal reduction to investment debt, particularly if a borrower has had investment debt paying interest only for 5 years or longer
  • Essential focus on Living Expenses for all borrowers, with self-declaration

For a more in depth understanding of these changes, keep reading!

Lending Ratios

Very few lenders today will lend on a Loan to Valuation Ratio (LVR) over 90%, their preferred option today is for lending below an 80% LVR which means a deposit of 20% of the total purchase price is preferable. Lender appetite for lending up to 80% LVR is certainly stronger than lending above 80% LVR. Depending on LVR, significantly different interest rates are subsequently applied.

Interest Rates

Interest rates for investment lending with interest only (IO) repayments can be anywhere around .50% higher than rates for lending with principal and interest (P & I) repayments although it is worth noting that interest rates with P & I repayments for owner occupied (OO) lending can be a further .30% lower than the above rates. Today, it is very difficult to obtain IO borrowing for OO borrowing and significant substantiation is required with clearly defined reasons for IO repayments with an OO loan. Heavy focus is placed on the requirements of responsible lending.

Interest Only Lending

The majority of lenders today are reviewing existing lending and seek to ensure the life of a loan is maximised to 30 years from inception. However, if a borrower has had IO lending for 5 years, in many instances, they are advised lending requires P & I reduction, with repayments calculated to ensure the life of the loan does not exceed 30 years.

Living Expenses

Up until approximately 12 months ago, many lenders would apply Household Living Measurement (HEM) to living expenses to satisfy cost of living to borrowers. Today, a self-declaration is required from all borrowers, although lenders will also carefully scrutinise bank statements to confirm the self-declaration is deemed accurate. The best solution when it comes to finance is to take the time to carefully discuss any borrowing requirements with a Finance Specialist, as the information above is generic in nature and individual circumstances always differ.

For more information from Terry Gardiner, check out https://www.moneyquest.com.au/broker/terry-gardiner/

Terrence Gardiner is a Credit Representative (No. 399006) of Money Quest Australia Pty Ltd, Australian Credit Licence 487823.