Rates are on hold but the housing fire could already be out.

The Reserve Bank decided to keep interest rates on hold during the week, much to the relief of many a home owner, citing concerns about European economies along with satisfaction with current inflation levels.

"Consistent with that outlook, and as a result of actions at previous meetings, interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago," Governor Glenn Stevens said.

But the damage to the housing market could already have been done, with some signs of moderation already emerging.

The RP Data Rismark Hedonic Home Value Index released last week showed signs of softening in April, rising by just 0.2 per cent over the month, after 16 months of strong gains.

A graph of the index’s rolling quarterly capital gains highlights a distinct pull-back in April after a peak in December.

Interest rates have jumped from 3 per cent to 4.5 per cent in as little as eight months. Unsurprisingly, that has had an impact on the number of loans approved, with housing finance falling for six consecutive months.

After dropping a cumulative 14 per cent from October to March, housing finance is now at its lowest level since February 2009.

The majority of this fall is due to owner-occupiers pulling out of the market – down by 24 per cent – as the first home owner’s grant was reduced, while investors rose 9 per cent.

The argument for why Australia didn’t experience the collapse in property prices seen in the US and other parts of the world has always been that the supply of accommodation here was limited while the demand continued to grow.

The stronger lending practices of our banks are another factor. We didn’t have as many loans going to property buyers who obviously couldn’t afford to pay them back.

The NINJA loan (no income, no job and no assets) was non-existent here.

But international commentators rightly point out that it is rare for bubbles in any kind of market not to burst.

The renowned value investor and founder of global investment management company GMO, Jeremy Grantham, says both the British and Australian housing markets should decline by about 40 per cent.

If they don’t, he says, it will be the first time in history that a bubble has not behaved in such a way.

We should be fortunate enough to avoid a property crash of the magnitude of that in the US but prices in any market rarely go only in one direction. They do fall, so don’t be surprised if property values start to soften.

Source: Domain.com.au

There’s no denying that when it comes to property investing and making money from renovating, first impressions count. Changing the first impression of a property is the second highest returning “add value” technique. Here’s why…

BY ANA STANKOVIC

In this day and age most potential buyers start their search for properties online. They look up the locations they’re interested in, enter their budgetary constraints and select certain property profile details that they require.

Only once they’ve got the search results of this initial selection do they start prioritising which of these properties interest them. Out of the ones that look interesting to them, they’ll go and drive by a number of them and have a look at them from the outside before narrowing it down even further to a select few that they’ll actually inspect.

If a potential purchaser has two properties which are in the same area, have similar profiles (number of bedrooms, bathrooms and parking spaces) and are similar in price, which do you think they’ll be more interested in:

-       the one with peeling paint, falling down fence, big bushy plant hiding half of the façade, green eaves, rusted garage door, etc., or

-       the one that’s neatly presented and looks light and modern.

The answer is simple. It’s human nature to judge a book by its cover, but it’s only because they’re trying to imagine themselves living there. It doesn’t matter how good your renovation is inside if you can’t get potential purchasers through the door to actually see it.

It’s a numbers game. The more people come inside and inspect the property, the more are likely to be interested and pursue purchasing it, creating competition and pushing the price higher. So it’s in your best interest to get as many people through the door as you can.

Winning Formulas for Success on average gets around $4 for every dollar that we spend on renovating that first impression of a property.

So how do you work out what immediately needs to change with your first impression? There’s a simple way that a colleague of mine suggested a few years ago and it works a treat.

Stand on the opposite side of the street from your property and turn around so that you’re facing away from it, turn around and face it for five seconds and away again.

Anything unappealing that caught your eye in that time should be neutralised or removed. If there was a bright color, falling down verandah, rot, big plant, etc. – anything at all that stood out in a negative light – it needs to be addressed.

Once you’ve done this, have a look at other homes in your area that are in the next price bracket from your property – what are they doing? You want to increase the value of your home so it pays to try and get your property to look more similar to higher priced ones in the same area.

Ana Stankovic is well known as one of Australia’s leading renovating-for-profit specialists and is regularly featured in prominent industry publications, expos and continually educates investors. To find out more or sign up for Ana’s free newsletter, visit www.RenovateAndProfit.com.

Story from the API Blog

Reserve Bank gives borrowers a breather, leaving interest rates unchanged amid renewed signs of global economic weakness.

The Reserve Bank has given borrowers a breather, leaving interest rates unchanged amid renewed signs of global economic weakness.

The central bank’s decision today to keep its key cash rate at 4.5 per cent snaps a series of three rises in as many months, and follows a month of turmoil on global financial markets.

Worries about a worsening debt crisis in Europe sliced 8 per cent – or more than $100 billion – from the value of Australian stocks in May, and virtually eliminated any expectation of a rate rise by the RBA today. The monthly shares slide was the worst since the depths of the global financial crisis.

”Since the Board last met, concerns about sovereign creditworthiness in several European countries have been a focus of financial markets,” RBA governor Glenn Stevens said in a statement accompanying today’s decision. ”Investors have generally displayed a good deal more caution.”

Even so, Mr Stevens said ”global growth is still expected to be at about trend pace in 2010. ” While conditions in Europe have been relatively weak,  growth in Asia – home to many of Australia’s top trading partners – ”continued to be quite strong and may need to moderate in the year,” he said.

Since October, when rates were at half-century lows, the RBA has lifted the official interest rate six times in a bid to discourage excessive spending as the economy rebounded from last year’s slowdown. Those rate hikes have piled about $300 on to the average monthly payment for a typical 25-year, $300,000 mortgage.

”They’re obviously waiting and seeing what the effects of past interest rates have been,” said NAB head of Australian economics and commodities Robert Brooker.

”We don’t think they’ll be moving up again until towards later in the year.”
Despite rising company profits, low unemployment and an increase in weekly wages, the recovery remains patchy.

Data out today showed building approvals sank 15 per cent in April, the most since November 2002. Retail sales, though, rebounded, rising 0.6 per cent in April, twice the pace of growth that had been expected by economists.

The Australian dollar was little changed after the RBA’s verdict, trading recently at 83.75 US cents, from 83.64 US cents just prior to the announcement.

Story by Chris Zappone Fairfax Digital

The Westpac-Melbourne Institute’s Consumer Sentiment Index has indicated a 7.0% fall in consumer confidence during May.

The Index now sits at 108.0 points suggesting that consumers have become less confident in domestic economic conditions over the last month. This is likely to be the result of a volatile share market, economic instability in Europe and higher interest rates. Whilst this month’s result is the weakest since June 2009, the Index remains well above 100 points which is the point where optimists and pessimists are evenly balanced.

A subset of the Index, the `Time to Buy a Dwelling Index’ recorded a fall of 15.4% from 104.3 points last month to 88.2 points, indicating that a majority of people surveyed believe the optimal time to purchase a home may have passed following the strong capital gains in home values over the last year and interest rate hikes.

The Reserve Bank’s Head of Financial Stability, Luci Ellis said at the Australian Financial Review’s Residential Property Conference this month, that housing prices had continued to receive upward pressure in Australia.

“It would be helpful if more of that demand could be accommodated with extra homes for occupation, instead of by higher prices,’’ she said. “Every cycle starts with something real, something fundamental. Recent data suggest that we do not have a credit-fuelled speculative boom on our hands. It would not be desirable for the current situation to turn into one.’’

While the Rpdata.com Market Activity Index has shown slight easing during recent times, the above average pre-listing activity level suggests that the listing environment should remain buoyant amongst real estate professionals over the coming month. Both the number of new properties entering the market and the total number of properties available for sale remain well above 12 month average levels despite falling below the level from the same time last year.

Story by Curtis Cooper REA

Having an understanding of median sale prices can add an extra dimension to your property purchasing skills.

Take care not to confuse median sale prices and average sale prices, the two numbers can vary enormously.

Averaging adds up property prices in a list and divides by the number of properties. The median price is the figure in the middle of a range of numbers arranged from lowest to highest.

So, if you have  11 properties, the median price would be the price of the 6th property from lowest to highest. There will be five properties below it in value and five properties above it in value.

Median and average prices can be quite similar if the prices form an even range from high to low. However, if the list of  11 properties has  eight low priced and only  three  high priced properties, the median value will look low compared to the average value. Conversely, with three low priced and eight high price properties, the median value will be higher than the average value.

Median prices are usually quoted by suburb/area or by a time period.  Suburb figures are usually calculated on the previous 12 months. Areas with less than 10 sales during that time don’t give enough data to generate relevant figures.

Comparing different areas with similar median prices can help make better sense of what median prices are all about.

Capital city medians are a good guide for suburban house prices, however houses within five kilometres of the CBD will have a much higher value than the median price for that city.

While median prices can assist as broad indicators and allow comparisons between cities, looking at recent comparable property sales in specific areas will always give the clearest understanding of the market you are in.

The best understanding of property values will be a combination of both median pricing – a macro view – and individual property sales in your target area, giving a complementary micro view.

Story by Sally Howes Domain.com.au

South Australians and Victorians tend to keep their options basic, whilst Queenslanders prefer to spice it up the most. What state you live in can determine just how you choose to do it. Borrow money that is.

South Australia

It’s often said that South Australians like to saviour the good things in life – food and wine.

Sex too, if you are to believe South Australian men, of whom 64 per cent told La Trobe University researchers that they had an extremely physically pleasurable relationship, much higher than the 45 per cent of Melbourne fellas and 44 per cent of Sydney blokes in the same survey.

(Interestingly, the percentage of women in all cities who agreed that they also had such a relationship was 31 per cent, 38 per cent and 36 per cent, respectively, but I digress…).

When it comes to housing loans, though, South Australians prefer plain vanilla. An astounding 69 per cent of all new loans through broker Mortgage Choice in South Australia are for a basic package.

Mortgage Choice spokeswoman Kristy Sheppard says basic variable loans can appear more affordable but have fewer features at the borrower’s disposal. They tend to be more popular with people on lower incomes and less experienced borrowers who are still finding their feet in mortgage land.

“This state’s demand for ‘no frills’ loans, which tend to have a lower interest rate and fees, says a lot about the conservative nature of South Australians,” says Sheppard. “SA residents tend to be good savers and are careful with their money.”

The broker recently surveyed South Australians who were planning to buy their first home before next February and found more than one-third (35 per cent) will have a deposit of 20 per cent or more to contribute towards their purchase.

This was the highest of any state and well above the national average of 29 per cent. Admittedly they have a lower bar to reach – Adelaide has the lowest median house price of the mainland capital cities.

Victoria

Victoria also shows a strong preference for basic variable loans though this has occurred only over the past 18 months. Before that, demand for basic and standard variable loans from new borrowers was pretty much neck-and-neck.

“Victorians are more cautious with their money, are strong savers and tend to be better informed about budgeting, managing their money and the mortgage process,” says Sheppard. “With Victoria predicted to experience exceptionally strong population growth in the coming years, it will be interesting to see where the demand for different loan types heads – will the state’s residents become less conservative?”

Standard variable loans are often priced slightly higher than basic variable loans, they tend to offer greater flexibility and features such as access to “professional packages” that, for a fee, provide a discounted rate and other benefits.

Western Australia and Queensland

Residents within the resource states tend to be the biggest consumers of loans with all the options.

“WA and Qld residents are happy to make slightly higher repayments in return for ‘bells and whistles’, which indicates they are less risk-averse and perhaps more capable of dealing with interest rate rises,” says Sheppard.

WA and Qld also have younger aspiring first home buyers, and more young people buying solo than in other parts of Australia. Many plan to buy their first home before they turn 30. In the other mainland states, the highest proportion of buyers-to-be are 30 years and over.

NSW

NSW tracks closer to the commodity boomers than it’s western and southern neighbours. A flood of first home buyers after the Federal Government’s first home owners boost was introduced in October 2008 has driven demand for basic variable home loans.

Before that, the preference was for more flexibility. Now it’s pretty much even-stevens with basic variable more in demand, but only by five percentage points.

Perhaps it’s got something to do with mortgage size. Almost one in three potential first home buyers in NSW intending to take out a mortgage of $400,001 or more, according to Mortgage Choice’s 2010 First Homebuyers Survey. This was the highest percentage for any state and noticeably higher than the national average of 24 per cent.

Story by Carolyn Boyd Fairfax Digital

Overall lending for property is on a slide and on the surface that looks like bad news for property investors. But a deeper look at the numbers suggests there is an upside.

Australian Bureau of Statistics figures show the number of home loans dropped by 3.4 per cent in March, following a 1.8 per cent fall in February. It’s the eighth fall in the past nine months.

Approvals for investment loans, however, are going the other way with a 3 per cent jump in March. Looking over the longer term, the trend becomes clearer with investment loans up by 24 per cent on this time last year and home loan approvals down by 30 per cent from six months ago.

When combined with a demographic analysis of an area, lending patterns can give us a very good indication of what is likely to happen to property prices in these markets.

For example in a suburb such as Glebe in Sydney’s inner west about 55 per cent of all property is owned by investors.

Investors target this kind of area because there is a strong tenant demand due to the closeness to the city, university, shops and cafes.

A significant jump in investment lending is a clear sign investors are active in the market. When this happens they compete for property in places such as Glebe and put significant upward pressure on prices.

About 45 per cent of people in Glebe own the property they live in so there will be a level of softening demand from buyers but it will be compensated for by the investors.

This differs greatly from an area such as Kellyville in Sydney’s north-west. Investors control only about 13 per cent of property in this area.

Although it is a great area to live and raise a family in, Kellyville does not have the kind of infrastructure that tenants are looking for. Therefore demand from investors is weak and will have minimal impact on property values.

However, about 85 per cent of property in Kellyville is owned by people who live in their property so the drop in owner-occupier loans is likely to have a significant impact on demand.
If interest rates continue to climb and demand continues to soften, the chances of property values falling are increased.

The property market is made up of various sub markets that can be pulling in different direction at the same time. As an investor, it is vital to understand which market you are getting yourself into and how to interpret the raw data that will affect the growth pattern of the property you wish to buy.
America’s favourite investor, Warren Buffett, once said: "I’d rather be vaguely right than precisely wrong."

Once you get your head around how to interpret raw data you will have a greater chance of being "vaguely right" and therefore a successful investor.

Mark Armstrong is a director of Property Planning Australia, www.propertyplanning.com.au

Revelations that foreign property buyers bought $14.9 billion worth of houses and land in Australia last year, including $2.49 billion worth of existing homes, is resulting in more calls from curbs on overseas investors.

The Federal Government refused to release these figures recently when asked to by journalists but they were in quietly posted on the Foreign Investment Review Board (FIRB) website last week.

They show that the Government issued 4827 real estate approvals to foreign investors last year for commercial and residential properties. About half the approvals were for temporary residents wanting to buy a house as their principal residence.

A further 988 approvals were granted to investors to buy vacant land for residential subdivision or to build a houses. The report also shows Victoria is the most sought after state by foreign investors wanting residential real estate, followed by Queensland and New South Wales.

But the figures are incomplete because the Government changed the rules in April last year so foreigners no longer had to notify the FIRB if the property was to be their principal place of residence.

Under foreign investment laws, non Australian residents can buy a dwelling for their principal place of residence but the Government has been criticised for relaxing foreign investment laws and they are being blamed for driving up house prices.

The Australian Government has now announced it will adopt a more stringent approval process so that fewer foreigners will be able to buy and acknowledging that they had pushed up residential real estate prices.

Foreign buyers will have to sell when they leave the country and those who ignore the new rules face heft penalties.

Critics say the new rules do not go far enough. Opposition politians are calling for a comprehensive study of foreign real estate investment.

‘In one sense, little has changed. Foreign residents can still purchase Australian properties and, in particular, people in Australia on temporary residence visas can still purchase existing dwellings,’ explained Immigration-law specialist David Stratton.

Foreign owned companies are also allowed to buy properties to house their Australian based staff and a developer can sell an unlimited number of dwellings, either off the plan or newly constructed, to foreigners, provided the properties are advertised locally.

In 2007/08, the main foreign buyers were from the US, Britain and the United Arab Emirates. The following year, Singapore investors topped the list, followed by the US and Britain.

Source: PropertyWire

Property industry groups have slammed the New South Wales Government’s decision to introduce a new tax on property transactions, but what impact will it really have on the market?

In the shadow of the Federal Budget last week, the NSW Government announced it was introducing a new transaction charge of 0.2 per cent for properties valued at $500,000 and above, or 0.25 per cent above $1 million.

The decision to introduce what’s become known as the ‘ad valorem’ levy (ad valorem is Latin for ‘according to value’) brought a furious response from the property industry.

The acting executive director of the Property Council in NSW, Glenn Byres, says the new tax will “hurt homebuyers and hurt the NSW economy” and deliver “a significant hit” to “homebuyers, the residential development market and (the) commercial property market”.

“NSW is barely creeping back from 50-year lows in residential construction levels,” Byres says. ”We can’t afford to strangle progress with a new stealth tax.” Sal Carrero, chief executive of property accountants Chan & Naylor, says the move will worsen affordability and hurt many prospective homebuyers in one of the most active market segments in the state.

“There are few family homes under the $500,000 threshold, particularly in Sydney, which will penalise families hoping to enter the market. This tax hits first homebuyers square in the eyes,” Carrero says.

“It’s also an added burden to property investors, who are likely to pass on the increased cost to renters. Increasing the cost of property to investors may seem like a populist approach but it will hurt the vulnerable as well.”

Urban Taskforce Australia chief executive Aaron Gadiel says the tax is merely a disguised increase in the rate of stamp duty.

“It again sends the message that anyone who invests in NSW will be subject to unpredictable and ever-changing imposts.”

NSW Opposition leader Barry O’Farrell has also chipped in, saying the “unfair” tax would make it even tougher for families looking to buy a home, and potentially impact on jobs if businesses took their investments interstate.

So just how big is this tax slug that’s going to hit homebuyers “square in the eyes” and “strangle progress”?

Well, as it turns out, it would total $170 on the sale of a $585,000 house, which RP Data puts as the current median price in Sydney.

That sounds more like a small pain in the behind rather than a true punch right between the eyes, but perhaps Aaron Gadiel gives a better picture of how the new tax will affect the marketplace.

He points out the levy would be a $23,500 impost on the purchase of a $10 million development site and a $123,500 impost on a $50 million development site.

That seems less like chump change.

Or perhaps the hyperbole over the new property tax is less a case of how much it will cost, and more about, as Wakelin Property Advisory director Monique Wakelin puts it, just how dysfunctional property taxes have become.

“Federal and state governments alike are growing increasingly dependent on taxes raised from property owners and this over-dependence comes at a high cost,” Wakelin writes for the Eureka Report this week.

“Rapidly decreasing housing affordability, a growing shortage of housing for buyers and renters and significant financial penalties for residential property investors are among the chief symptoms of a chronic problem requiring urgent reform.”

By Mathew Liddy Australian Property Investor

The Minister for Lands, Tony Kelly, confirmed today the new tax would begin on July 1 and had been formulated as a NSW budget measure.

The tax will be levied on the buyer.

Tens of thousands of NSW home buyers a year are set to be hit with a new tax that will cash in on the improving property market and boost state government coffers by an estimated $90 million annually.

Quietly released by the Minister for Lands, Tony Kelly, amid the wash-up of the federal budget, the new land transfer charge will be imposed on the sale of residential and commercial property worth more than $500,000.

The announcement has outraged property groups, which branded it ”just another stamp duty increase”, while the opposition has criticised the timing of its release as ”sneaky”.

Under the proposal, the portion of the sale amount between $500,000 and $1 million will attract a tax rate of 0.2 per cent, before the charge rises to 0.25 per cent for the portion of the sale above $1 million.

The median Sydney house price is about $600,000, which would attract a charge of $200, while the tax on a property sold for $1.2 million would be $1500.

According to figures provided by the Department of Lands, almost 30,000 residential and commercial property sales of between $500,000 and $1 million were settled in the past 12 months. More than 10,000 properties sold for more than $1 million in the same period.

Aaron Gadiel, the chief executive of the developer lobby group Urban Taskforce, said the new charge amounted to a 4.5 per cent increase in stamp duty for the top end of the property market.

He estimated that a developer looking to acquire a $10 million development site for new housing would be hit with an extra cost of $23,000.

Mr Gadiel said that it ”flies in the face” of the recommendations of the recently released Henry tax review, which criticised transfer duties.

”The Henry review said they were unfair; they hit some members of the community harder than others and they could cause economic distortions and reduce business activity,” he said.

The acting NSW executive director of the Property Council of Australia, Glen Byers, said that the tax was introduced ”without consultation, without explanation at a time when the investment climate in NSW is fragile”.

It is understood that legislation for the new tax will not be introduced before the next session of Parliament, which begins next month.

The government is not indicating when the tax might begin, but a spokesman for the Treasurer, Eric Roozendaal, said the revenue forecast to be generated by the tax would be included in the state budget on June 8.

The announcement was labelled ”sneaky” by the Opposition Leader, Barry O’Farrell, because it was buried in a press release which focused on new security measures for land transfer documents.

Mr Kelly’s release suggested part of the tax would be used to fund the security measures.

A spokesman for Mr Kelly said revenue from the charge would flow to the Department of Lands, not the Office of State Revenue, as was the case with stamp duty.

However Mr O’Farrell said: ”This is another attempt under the cover of a federal budget to get some bad news out from the state budget, well away from polling day in Penrith.”

Figures provided by Mr Kelly’s office suggest that the proposed NSW charge is at the lower end when compared with similar charges imposed by other states.

Based on a sale worth $750,000, the spokesman said only Western Australia charged a lower ”registration charge” of $260, compared with $500 proposed in NSW. In Victoria, the figure is $1350, in Queensland it is $1623 and in South Australia it is $4759.

Story by Sean Nicholls www.domain.com.au

The Reserve Bank of Australia (RBA) has warned lenders and borrowers to be prudent while giving an assurance that Australia does not have a speculative housing bubble on its hands.

Fears of a property bubble emerged after the Australian Bureau of Statistics house price index rose 20 per cent in the year to March.

But RBA head of financial stability Luci Ellis said in a speech that Australian house prices have recovered their small decline from 2008 to post increases of between about 12 to 15 per cent over the past year in capital cities, depending on the measure.

Ms Ellis said recent data suggested Australia does "not have a credit-fuelled speculative boom on our hands".

"It would not be desirable for the current situation to turn into one," she said in a speech.

"It will therefore be important for lenders to remain prudent in their standards.

"It will be equally important for prospective borrowers to have realistic expectations, and not to rely on a hoped-for capital gain in order to service their debts."

She told a residential property conference housing prices have been under upward pressure in Australia, with most short-term drivers coming from the demand side following the increased first home-buyers grant, low interest rates and lower than expected unemployment.

"The nature of the demand shock Australia faces means that it would be helpful if more of that demand could be accommodated with extra homes for occupation, instead of by higher prices," she said.

"Some of that pick-up in construction does seem to be happening."

She said the supply of housing was always going to be quite "sluggish".

"But whatever the causes, the ability to add to supply is falling short of this higher rate of population growth, despite some pick-up recently," she said.

"Naturally that is putting upward pressure on housing prices."

Ms Ellis said it would be "desirable" for the supply of new dwellings to become more flexible than it had been to date because extra people need somewhere to live, and both house prices and rents could rise.

The more that housing prices rise, the more some people might feel they must stretch their finances to buy a home, she said.

Another concern was that if too much of the response to faster population growth comes as faster growth in housing prices, this could be "built into people’s expectations".

"If price expectations become over-optimistic and encourage too much investor demand, the result could be disappointment, or worse," she said.

She also said fewer households had bought their homes without debt.

Across the mortgage market, lending standards were now a little tighter than they were a few years ago and the fraction of low documentation loans was now lower than it was two years ago for both owner occupiers and investors, she said.

As well, only a minority of recent home loan borrowers started with a loan to value ratio above 90 per cent, she said.

Ms Ellis also revealed the RBA has been carefully watching lending standards in the important first-home buyer market segment.

"First-home buyers have long faced greater risk than more established home owners who have more equity in their home," she said.

"But as far as the data allow us to tell, recent new loans to first-home buyers look quite like those made to previous cohorts of first-home buyers."

AAP

Residential rents across Sydney have remained stable despite rising property prices, NSW government figures show.

NSW Housing Minister David Borger said the average rent in Sydney in the March quarter was $400 a week, just $10 more than in the same period a year ago.

"Rents remained relatively stable throughout 2009, and the latest data shows the stability continuing into the first quarter of 2010," Mr Borger said, referring to the latest Rent and Sales report from Housing NSW.

The cheapest one-bedroom homes in Sydney’s "outer ring" were in Wyong and Gosford on the central coast, costing just $170 a week.

The most expensive one-bedroom home was in the Sydney local government area, with an average weekly rent of $450.

Meanwhile, a four-bedroom home in Wyong cost just $373 a week, compared with $1800 in the eastern Sydney council area of Woollahra.

Sixty per cent of people looking to buy an investment property before mid 2011 planned to access equity in their home to fund all or part of that purchase, according to the latest Mortgage Choice property survey.

This response reveals that there’s still a high proportion of ‘mum and dad’ investors who don’t comprehend how to use equity to buy additional properties, and feel they must first repay their mortgages, said Mortgage Choice spokeswoman Kristy Sheppard.

In addition to using the equity balance, which acts as the loan security and the cash deposit substitute, meeting the lender’s serviceability criteria is also important, said Sheppard. And on loans that equate to more than 80 per cent of the property price, adds Sheppard, lenders mortgage insurance must also be factored into borrowing costs.

Risk is also a consideration when accessing equity, said Sheppard.

"Before accessing your equity it is necessary to establish whether you can comfortably afford higher loan repayments and which, if any, lender is willing to lend to you," she said.

Mortgage Choice identifies three common types of equity finance:

1. Loan top-up – is essentially a mortgage extension to fund another property purchase. Extra funds are usually made available via a lump sum payment with interest payable on the entire top-up amount.

2. Line of credit – allows a borrower to withdraw funds in addition to a home loan amount, up to a limit set by the lender. Interest is also payable on these funds. Line of credit loans generally attract a higher interest rate, are often interest-only and must be carefully managed.

3. Refinancing – allows a borrower to move to a different lender and loan product to increase the home loan amount. It’s important to shop around as lenders offer different features, fees, interest rates and measure borrowing capacity differently.

Source: API Magazine

Property prices in Australia could start to fall as a result of interest rate cuts and a cut back in mortgage lending, it is claimed. Despite prices increasing by up to 20% in the last year, a six interest rate rises in the last eight months could put the brakes on and there is evidence of a slowdown, experts believe.

REAL estate experts are bracing for the housing market to finally slow down, as the effects of the latest interest rate rise filters through to buyers.

According to Australia’s largest real estate group Ray White, turnover in the first three months of the year is sluggish compared with last year, up only 8%, the smallest increase since the global financial crisis.

The reduced activity has continued in to April, said Brian White, joint chairman. ‘Judging by our April results, it looks as if the interest rate increases are having an impact on activity. With the additional interest rate hike, it would be the first time that the Australian market has not shrugged off the pattern of increases in the past. At last, it would appear that the ambition of the Reserve Bank to slow down the residential activity has been achieved,’ he explained.

Another outcome of soaring prices is an increased in those struggling to make mortgage payments. According to independent interest rate monitor RateCity about 27,000 households have already missed mortgage repayments and thousands more are expected to fall behind after the latest interest rate rise.

The number of securitised home loans more than 90 days in arrears has rapidly increased from 0.05% in January to a current rate of 0.6% it said.

The worsening financial crisis in Europe could also affect the Australian market. Some analysts even believe there might be a rate decrease later in the year, although most are predicting they are likely to remain on hold.

‘There will be a slower housing market in Sydney in the second half of this year, even with a normal economy,’ said SQM Research managing director Louis Christopher. But he added that if the euro zone woes worsen there would be the potential for quarter on quarter falls at the end of the year.

Residex chief executive John Edwards believes price growth will moderate and he forecasts 5 to 8% overall. The top end of the market would do best, while some cheaper areas of south western Sydney were already going backwards.

According to Australian Property Monitors economist Matthew Bell prices in the most expensive half of the property market would rise at twice the rate of the bottom half.

Story from PropertyWire.com

Next week’s Federal Government Budget should address the recommendations of the Henry tax review to improve housing affordability and assist low-income private renters, according to the Australian Council of Social Service (ACOSS).

"Rising housing costs are putting increasing pressures on low-income Australians who are struggling to make ends meet in a tight rental market," says ACOSS chief executive officer Clare Martin.

"The Henry Review identified what low-income renters have known for years – rent assistance is too low for many people to secure adequate housing."

"ACOSS is urging government to take up the Henry Review proposal to increase rent assistance and link maximum rates to market rents."

"We have asked for a 30 per cent increase in rent assistance for low-income households which is about $15 per week."

Martin says rent assistance levels have fallen behind market rates – the Henry Review noted that over the past three years annual rents have risen at an annual rate of 10 per cent, while rent assistance has increased by only 2.7 per cent.

"The Henry Review notes that a single unemployed person spends about half of their payments on rent, leaving them with little left for other living expenses," she says.

Story from API Magazine