What do Sydney’s rising house prices mean for homeowners, investors, and first-home buyers?

First time buyers, Home buying & selling, Investing, Sydney
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There’s some well-worn rhetoric that gets ample airtime on the nation’s media landscape – the Australian dream of home ownership is dead for the next generation, with young first-home buyers being priced out of the market in droves.

And with recent forecasts predicting Sydney property prices would surge 21 per cent in 2021, it’s easy to see why.

This means the median house price in Sydney is expected to jump another $220,000. Ouch! It’s hard to scrape together a deposit when house prices keep moving that much.

But while there is no denying that it is increasingly challenging for young first-home buyers to get their foot on the first rung of the property ladder, there is a flip side to this argument.

On the opposite side of the ledger are those who are already scrambling their way up the property ladder; owning either their own home or an investment property (or both!). For this group, rising house prices are good. Rising prices bring opportunities.

Opportunity knocks for property owners

Despite lockdowns in Sydney and in wider New South Wales, prices have remained resilient. 

At time of writing, Sydney house prices have lifted 18.2 per cent over the past 12 months, withstanding multiple lockdowns. This growth is extraordinary. Regional New South Wales median house price has exceeded this, lifting 22.9 per cent over the past 12 months. 

‘Surge’ is the best way to characterise this growth. Property experts, such as Michael Yardney, are forecasting growth to continue until the end of the year, albeit at a much slower pace.  

Sydney homeowners and Sydney investors are watching the property prices rise and they understand this means their assets are appreciating in value. 

The asset is performing as it should to build their wealth.

It’s a golden opportunity for homeowners to leverage that wealth and look at making it work even harder, turbo-charging their asset’s growth in value so they can build their personal prosperity.

Increased equity is, literally, money in the bank and can unlock a wealth of opportunities for the Sydney property owner.

How much can you access?

To calculate the amount of equity available in your property, take the current estimated market value of your home using recent sales in the area or a real estate valuation and subtract any debt against the property. 

For example, if your home is worth an estimated $750,000 and you owe $300,000 then the equity you have is around $450,000.

But before you start doing cartwheels, you need to remember that you must factor in what loan amount you can service with repayments. Your income, spending levels and other debts need to be allowed for so it can be realistically calculated how much in additional borrowing you can afford to pay down.

And remember also, that the bank has it’s preferred margin for safety to which is lending a maximum of 80% against the value. So in the example of $750,000 value, you take this at 80% = $600,000 less your loan of $300,000, leaving you actual useable equity of $300,000 and not the $450,000 as mentioned previously.

And remember, if you borrow more than 80 per cent of your home’s value, then you may be liable for lender’s mortgage insurance.

Pro tip: A mortgage broker will come in very handy here, to help you understand exactly what you can afford to borrow, what costs are involved and how to avoid some common traps, and they can also help you find the right lender for your circumstances. It may not be with your current lender either. 

Looking to renovate, buy again or invest in shares?  

For many Sydney homeowners who have been paying down their mortgage, the growth in value means they will now have increased equity in their home. 

The choices most Sydney property owners consider when accessing increased equity is to renovate their existing property, buy an investment property, or diversifying their portfolio toward another investment such as shares. 

When making a choice about renovation vs new investment property vs shares, personalised advice from a qualified expert is essential. 

A couple of quick tips to consider: 

  1. Don’t overcapitalise: If you’re thinking about renovating then make sure you have an understanding of who your target market is at sale time so you don’t price them out of the market. Understand the demographic that buys in your area and cater to their needs. 
  2. Risk profile: If you’re considering buying shares, understand that shares go up and down in value and that they’re a long-game investment in most cases. Speak to a qualified advisor before investing in shares so they can talk to you about your risk profile.
  3. Buying high: If you’re contemplating buying an investment property, bear in mind that you’re buying at a time when prices are surging. Plan for the inevitable price correction and make sure you are prepared for all outcomes.

A word for first homebuyers

For first homebuyers, don’t let the rising market scare you. There is a raft of government incentives and assistance on hand to help you get started. 

It has always been the most difficult thing, just to get started and get on the property cycle. The deposit and saving for it represents the hardest thing but with these government incentives available (First home loan deposit scheme – FHLDS), the 1st home builder scheme and the single parent scheme, you can get into the market for as little as 5% deposit, and for single parents 2%.

There is more information here:- https://intuitivefinance.com.au/first-home-buyers-what-are-you-waiting-for/

And then there is always the Bank of Mum & Dad that can also assist 1st home buyers.

The current low-interest rate environment will help you not only get on the ladder but will also assist in paying down a sizeable chunk of your loan quickly. Rates are forecast to remain low for the foreseeable future, which is a great chance to get started.

This means you’ll be building equity far sooner than those who wait on the sidelines. 

For more information, you can download our handy guides:- 

First-time buyers: The Guide To Finance for First Home buyers
Property Investors: Guide To Finance For Self Employed People

As the property market delivers strong growth, it presents opportunities for all sorts of buyers.

Making your assets work hard for you is part of a good wealth accumulation strategy, but, as always, a qualified advisor is key to making the most of these golden opportunities. Don’t risk a mis-step by failing to get good advice! 

Getting the right financial info about Sydney Property prices

Investing in property involves myriad costs including a big lump sum to the relevant state government in the form of stamp duty.

While there’s long been debate about whether it should be axed, the reality is it’s probably not going anywhere anytime soon.

The world of banking and finance can be a pretty daunting one for both novice and sophisticated investors and since our establishment in 2002 we’ve focused on providing outstanding service and business standards.

This approach has been vindicated many times by our multi award-winning approach.

So, if you’d like to understand more about stamp duty, why not contact Intuitive Finance located in Melbourne today to ensure you have the right information and expert support on your side from the very beginning.

If you’d like an expert to teach you more about stamp duty and tax or if you have any other questions, please just contact us directly and we’ll be in touch.

Discuss your specific needs & formulate the right strategy for you. Get in touch to organise your complimentary 60min session today!

The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

Andrew Mirams

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