For many Australian households these truly are unprecedented times and it’s perfectly understandable that many are feeling uncertain about what financial moves they should be making, particularly when it comes to property. There could be uncertainty due to job security, fluctuating business revenues or simply how long you expect lockdown measures to be in place, and these factors have caused many Australians to have doubts about whether now is the right time to buy, refinance or grow their investment portfolio.
No matter what stage of life you’re at, and what your property goals may be, there are opportunities in the market, and this week we’re dispelling common misconceptions that we’ve heard this year to ensure that our community can make smarter, more informed decisions when it comes to their finances.
Let’s jump straight into them.
- “It’s harder to get a loan during Covid-19”
There are many Australian expats and those at home who have not seen their income or employment impacted by Covid-19, and if you’re one of these, then applying for a new loan or refinancing your existing loans should not be any more difficult during this pandemic.
We have seen many lenders put in place additional checks and balances to ensure that they’re meeting the responsible lending requirements and that you as the borrower can genuinely afford the repayments, however we have not seen the process be any more difficult than normal for most.
If you are in a position where your income may have been impacted by Covid-19, or you currently have your existing loans deferred, speak to a qualified mortgage broker before submitting your application to review your situation and outline a suitable approach for you.
- “I’ll just wait until interest rates fall further”
Predictions can vary significantly when it comes to the future of Australia’s interest rates. Some are expecting that our current record low 0.25% is here to stay for the medium term, others are speculating that we may head into negative rate territory. The Reserve Bank of Australia (RBA) has suggested that there won’t be any further rate cuts and other measures would be explored prior to any rate rates.
The important takeaway here is not whether rates will fall further or not, it’s a question of whether you should be taking advantage of the current low rates if you’re looking to buy your own home or refinance.
Many Australian households and expat investors have interest rates in the 4’s, whereas the current rates on offer are in the low to mid 2 percent range, which can result in a significant saving.
- “Only the wealthy can afford to invest in property”
A recent survey carried out by LJ Hooker revealed that of 1,700 property investing households surveyed, that 37% of them had an annual income of less than $100,000, while 29% earned between $100,000 and $150,000, and the remaining 34% earned above $150,000 per year.
No matter where you’re looking to start your property investment journey, it’s important to do your homework as working under the philosophy that a ‘rising tide will lift all ships’ may not always work for poorly selected properties.
It’s important to recognise that you don’t need a substantial deposit to get into the property market. You may be in a position where you already own your own home and can access equity in the property to assist with the purchase of your investment property. You may also be able to access the First Home Loan Deposit Scheme (FHLDS), which could allow you to get into your property with as little as a 5% deposit. Finally, you could also get into your property with a deposit less than 20% by considering Lender’s Mortgage Insurance (LMI), which is not necessarily a strategy that we often recommend, but if this is suitable for you, it could allow you to reach your goals faster.
- “Refinancing is just too difficult”
With interest rates at record-lows, any many lenders offering attractive fixed interest rates to encourage borrowers to lock in their rates with them, there has rarely been a better time to consider refinancing. The idea that refinancing is difficult sounds more like a myth spread by the larger lenders to ensure that borrowers don’t consider leaving them and exploring other options.
With the average interest rate for many Australian borrowers in the 4 percent range, and many lenders offering low to mid 2 percent, this could result in a significant saving for your household.
Refinancing could also allow you to access equity in your property to fund a new property investment, or simply to cover ongoing expenses. Finally, there are also a range of lenders that offer a cashback incentive for refinancing to them, which may provide a helpful boost during these unprecedented times.
- “I’ll just wait for property prices to decline further”
We’ve certainly heard this one more than once, and if you believed every headline, this would be an understandable response. However, if we look at the data, as well as the forecasts by the leading research houses, many have downgraded their decline expectations, with Westpac just recently announcing that they only expect a further 2 – 3% decline, before seeing a 15% uptick over the following 2 – 3 years.
The most important point here however is not the aggregate forecasts, but exploring the key variables and factors that drive the prices in the areas that you’re looking at. For example, it may be reasonable to expect a greater decline in those areas with a larger portion of renters whose employment has been more severely impacted by Covid-19, then a blue-chip area that has a larger portion of white-collar owner-occupiers.
The same can be said for dwelling types, so when it comes to property investing and considering your own strategy, it’s always important to consider the specific data related to your target areas, as well as the aggregate Australian property data.
- “Rent money is dead money”
Many Australians view renting as a waste of money because you’re simply helping to pay off somebody else’s mortgage. While the latter portion of this statement is true, the same view can be held for interest on your mortgage, which is not having any impact on reducing your principal, and the only key benefit could be if the property is an investment and the interest is tax-deductible for you.
During these unprecedented times, we’ve seen many consider the strategy commonly referred to as ‘rent-vesting’. This is where you buy an investment property and continue to rent, or in some circumstances continue to live with your parents or family while you grow your property portfolio. There are many pros and cons to this strategy, and while financially it is often a sensible move, it’s important to do your homework and consider both the quantitative and qualitative aspects of this decision.
Whatever your current position and financial goals may be, feel free to reach out to our team to explore how we might be able to assist you during these unprecedented times.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
Book an obligation-free, complimentary consultation here today.
LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.