Whether it’s buying a first property, upsizing to a bigger and better home or simply reviewing finances, a new year allows reflection on what’s important.
After a year like no other, home owners and buyers have a range of opportunities to enhance their lifestyle and improve their financial position in the process.
Explore a change
After a tumultuous year, home owners are exploring new possibilities, which may challenge established ideas.
“The coronavirus pandemic has changed people’s attitudes away from units towards houses, and the regional centres over inner-city areas, which is contrary to the trend of the past 20 or so years,” says AMP Capital chief economist Shane Oliver.
“Working from home will be a trend that will keep going, which means that people are less constrained in where they locate themselves.”
Economic shifts coupled with societal changes have presented upsizers with the opportunity to make a move.
“There’s always young families and couples wanting to upgrade from one property to another,” says mortgage broker and Wealthful founder Chris Bates. “COVID has made them question their home a bit more.”
Before going too far, buyers considering a change need to understand their borrowing capacity. Government intervention has not only prevented major declines in home values, but pushed some mortgage rates below 2 per cent, with cheap money putting upward pressure on prices.
“The reality is people’s borrowing capacity is potentially higher because assessment rates are lower,” Bates says. “People will start stretching, and even conservative people who would normally want to have a smaller mortgage are wanting to be aggressive.”
Beyond the obvious lifestyle benefits, upgrading the family home can improve owners’ financial position through the improved growth prospects of a more desirable asset in a rising market.
“If you can afford the 2 per cent repayments, you’ll probably be rewarded financially because you’re getting a better asset and that will compensate for the additional interest you’ll pay,” says Bates.
Get on the ladder
Those not yet on the property ladder should start a conversation with a mortgage broker or lender to create a financial path towards taking advantage of the opportunities available.
“First-home buyers are getting a good deal because of the various government incentives,” says Oliver.
Those incentives – including the First Home Loan Deposit Scheme that allows buyers to purchase with a deposit below 20 per cent without paying lender’s mortgage insurance – can affect the total amount buyers need to save.
Bargain-hunting buyers could consider areas where prices are under pressure, says Oliver.
“In some areas you may be paying more than you were a year ago, whereas if you adjust your desire and look at areas that have been harder hit by the absence of students and immigrants then you might find bargains,” he said.
First-home buyers should remain patient, Bates says, as the fear of missing out can lead to temptation to buy an inappropriate home that stagnates rather than grows in value.
“Always trying to buy an asset you can grow into,” he says. “If you have to, compromise on location, don’t compromise on the quality of the asset.
“Make sure the home really suits the owner-occupier market, and ideally the family market.”
Review your mortgage
Six interest rate cuts in the past 18 months make it all the more important for borrowers to regularly review their finances.
Fixed-rate home loan deals below 2 per cent offered by the big banks can allow home owners to lock in their rate for up to four years, provided potential drawbacks such as break costs are understood.
Splitting the loan into part-fixed, part-variable offers borrowers more flexibility, and it’s unlikely rates will fall much lower.
“When you fix rates at 50 or 60 basis points below variable, it’s going to take a lot of competition for the variable rate to go down that low,” Bates says.
Home owners who bought several years ago may have outdated rates and unsuitable mortgage settings, as the loyalty tax – the difference between existing customers’ and new customers’ rates – is getting bigger and bigger, according to Bates.
“Even after two years you’d be out of the market by 30 basis points, and the banks are pretty awful at letting you know,” he says. “I’d be going back to your bank after 12 months.”