April 18, 2012
Low interest rates, below par property prices and a glut of available stock are promising signs for savvy property investors, according to Australia's largest independently-operated mortgage broker, Mortgage Choice that writes almost one in every 20 approved home loans.
Already this year the property market has seen an increase in investor activity as many hone in on the opportunities available. The latest ABS hosing finance figures show that the value of investment housing loans rose by 4.4% in February 2012 to $6.9 billion, seasonally adjusted. This is a 6.6% increase on the same month last year and is noticeably above the yearly average of $6.6 billion.
Mortgage Choice spokesperson, Belinda Williamson said, "Investors who have their finances in order, and who have conducted thorough research, may find windows of opportunity in today's property market."
"The latest figures from RP Data show that in January there were over 287,000 residential properties for sale in Australia, which is approximately 30% higher than the same time last year. The glut of available properties in some states could provide investors with prime pickings, particularly if prices have also fallen in the region. According to the same research, property values fell over the three months to December 2011 in all capital cities except Sydney and Hobart, which moderately rose by 0.7% and 1% respectively.
"Other encouraging signs for investors include relatively low interest rates, and in some areas, rental price growth and low rental vacancy rates. The latter is influenced by Australia's housing undersupply issue. The latest ABS building approval figures show a fall in February, the fifteenth consecutive monthly drop. With fewer new properties being built, vacancy rates should remain tight and we are bound to see further pick up in rental price growth. Already, RP Data's latest research shows capital city rents over the past 12 months have increased by 7.1% for houses and 4.2% for units.
"Rental yields are also showing positive signs of improvement. Gross rental yields over the 12 months to December 2011 have improved, with yields for houses rising to 4.4% from 4.0% and units increasing to 5.1% from 4.7%.
"When choosing what type of property and where to buy, it is a good strategy to invest in a dwelling that is well located, highly regarded by renters and priced appropriately. Ideally, the property will be in close proximity to amenities, shops, public transport and have appealing features, such as off-street parking.
"Of course, there are tax and legal ramifications associated with property investment, and it is always a good idea to get professional advice from an accountant or solicitor before settling on a strategy.
"Prospective investors should be aware that lenders generally limit their loan to value ratios - LVRs - to 90% of the purchase price. However, some lenders may consider a higher LVR, depending on the individual borrower so it pays to shop around. Keep in mind, when the LVR is 85% or above, a genuine savings deposit of 10% is required, which can be savings held over a period of at least three months, equity in an existing property, etc. Borrowers should investigate the finance side of any purchase early on to ensure they satisfy their chosen lender's requirements."
Mortgage Choice provides the following five tips for potential property investors:
1. Research your property options - Conduct thorough research before settling a property investment strategy. If you are not confident in your ability to find a suitable investment property, seek assistance from a buyers' agent. Before committing to any property purchase, it is a good idea to discuss your plans with an accountant and/or financial planner.
2. Pre-approve your property loan - Talk to a professional mortgage broker about getting a home loan pre-approval. This gives you an understanding of what you can comfortably repay and afford to buy. It allows you to shop with greater confidence, whether you are bidding at auction or negotiating a purchase.
3. Look into LMI - If you decide to access the equity in your existing property to purchase another and you borrow more than 80% of the property's value, you will probably need to pay lenders' mortgage insurance (LMI). This can be quite costly, ranging from hundreds of dollars to tens of thousands. A professional mortgage broker can provide up-to-the-minute information.
4. Choose a suitable loan structure - There are a number of factors to consider when deciding on the type of loan structure to suit your investment strategy. This could include how to tie in any existing loans, what loan features will help you achieve your financial goals (eg. offset account, redraw facility), which loan suit your needs (ie. interest only loan or principal and interest, fixing part or all of your loan, etc).
5. Build a financial buffer - Be prepared for the longer-term peaks and troughs of the property cycle by building a financial buffer of at least 1-2% to cope with additional expenses including lenders' interest rate rises, property maintenance and repairs, and/or the loss of a tenant or rent arrears. Remember that regular income from any investment is not a certainty and capital gains do not appear overnight.
Call Mortgage Choice customer service on 13 MORTGAGE. Or, visit www.mortgagechoice.com.au,www.facebook.com/MortgageChoice or http://twitter.com/MortgageChoice.
For further information or to arrange an interview, please contact:
(02) 8907 0472 or 0407 416 124