If you’ve owned your home for a number of years, it’s time for a quick refresher course to know how you’re placed in the current market.
Recent years have seen plenty of changes in both the property market and the mortgage market. So if you’re thinking of upgrading to your next home, it’s worth taking a minute to understand the current state of play.
Here are six must-knows that will bring you up to speed.
1. Assessment of living expenses
Tim from Mortgage Choice says lenders are now scrutinising people’s living expenses far more thoroughly than in the past.
If you have a history of spending frivolously, it will almost certainly impact your ability to borrow.
“If you’re down at the pub every night blowing $100, no matter how much income you earn, it’s going to hurt you.”
2. The impact of price growth
It’s no secret that the last five to 10 years have seen significant home price growth across many of Australia’s major capital cities.
Many homes in certain growth suburbs have doubled in price over the past 10 years. Picture: Getty
In some areas, home values have doubled. That’s great news for you as a home owner. The downside is that you could end up paying far more in stamp duty on your next home than you anticipate.
“There’s been exponential growth in the major cities and if buyers haven’t bought a home for a while, they’re going to be subjected to much greater stamp duty costs,” Tim says.
“Stamp duty on a $500,000 home, which might have been the home they bought ten years ago, is a lot different to a home at $1.5 million.”
3. Local research is everything
It’s important to understand the nuances of your local market before jumping back into it. Picture: Kate Hunter
The property market across Australia is far from uniform, and just as there are big variations in prices between cities, there can be noticeable differences in the state of the market across different suburbs even within the same city.
The main point is that city-wide figures don’t paint the full picture.
As a guide, over the last 12 months, Melbourne’s overall median home price has dropped by 1.7%. But not every suburb has seen property values fall. The most expensive end of Melbourne’s market has been hardest hit, with values declining 5.2% over the past year. The most affordable suburbs on the other hand, have actually seen home values rise by 6.0%.*
The bottom line is that you can’t simply assume prices have risen – or fallen – in your target market. This is why local research is so valuable. It’s the only way to have a clear idea of how home values have fared in your patch, and that’s essential information when diving back into the market.
4. Use your home’s equity
If you’re putting yourself through a mortgage bootcamp, it’s important to know that as a home owner, you have a key advantage: Your home equity can be put to work buying your next place.
Josephine and Douglas are home upgraders, tossing up between buying a bigger home, or renovating.
Since you purchased your current home, the value of the place has risen, and you’ve whittled away part of your mortgage. The two together have given you home equity, and that can increase your spending power on your new property.
“A free valuation through your broker will enable you to ascertain how much equity you’ve got in your property, and that’s critical to understanding what the end figures look like when you’re going for the next loan,” Tim says.
It’s important to remember – balance is key – and that means choosing the best option for your situation to avoid over-extending yourself.
“Sometimes selling and buying will cost more than improving your home and getting it to where you want to be,” Tim explains. “So you really need to spend some time considering the costs of renovating vs. buying again.”
5. Good news for the self-employed
If you own your own business, are a contractor or employed casually, you may have had difficulty obtaining finance previously.
But Tim says lenders are now far more open to different types of income.
“If you were a contractor or casual, there was pretty much nil chance of getting a loan six or seven years ago,” he says.
“But now lenders are accepting that there are more and more contractors out there in the broader world and people do move from job to job pretty regularly.”
6. Credit reporting scrutiny
If you’re looking at taking out another loan, bear in mind that your credit history will now have a far greater impact on your borrowing capacity than it would have previously.
Hot tip, if you haven’t been in the property market for a while: Credit reporting today is extremely thorough.
Tim says lenders will dig deep into your credit file and will limit what you can borrow if they don’t like what they find.
“The credit reporting on your credit file is extremely thorough. The new reporting process really does mark you hard for loans or savings accounts that are overdrawn, or loan payments that are late.
“Mortgage customers need to be very aware that they can’t miss payments or be overdrawn on any of the accounts, because it will have a negative impact on their ability to get a loan.”
*Source: Housing correction deepens in August with dwelling values falling across five of Australia’s eight capital cities dated 3 September 2018
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