More Australians are turning to property investment, new analysis has revealed.
CoreLogic’s head of research, Eliza Owen, found that the number of investors entering the market was exceeding the number exiting, by comparing home loans data with listings data.
“Investor inferred listings have been trending higher since March this year, to 13,000, but remain well below the peak of investor listings activity in November 2021,” Ms Owen said.
“As investment listings remain below these highs, the number of new loan commitments remains high at 18,400. The previous five-year average for the month was 14,516.”
Why is property investing so popular? Probably because it offers three big potential benefits:
- Capital growth: If your property rises in value
- Ongoing rental income: Which can be used to pay down your mortgage
- Tax benefits: You can reduce your taxable income if your property is negatively geared
Reach-out if you’re thinking about buying an investment property. We’ll model different repayment scenarios for you, so you can make an informed decision about whether investing is right for you.
Top 3 ways to finance your renovations
Are you considering renovating? If so, you’re not the only one. Renovations are incredibly popular, with homeowners spending $2.84 billion in the June 2024 quarter, according to the Australian Bureau of Statistics. Typical costs range from about $2,000 to $5,000 for bedrooms, $15,000 to $30,000 for bathrooms and $25,000 to $50,000 for kitchens, according to JDL Constructions.
Here are three ways to finance your renovations:
- Home Equity Loan
Unlocking the equity in your home is one of the lowest cost options to finance renovations. Home Equity Loans also provide you with the most flexibility, as funds are released immediately and not controlled by the bank, as opposed to a Construction Loan. The repayments can be structured as Interest Only, so you will only need to pay interest on the funds drawn, instead of the total limit of the loan. - Construction loan
With a construction loan, the funds will be controlled by the bank and only released in stages, rather than upfront. These loans are usually based on Interest Only repayments, so you’ll only be charged interest on the funds drawn. Although your construction loan will be interest only during the building phase, it will revert principal-and-interest repayments once construction has been completed. - Personal loan
Compared to a Home Equity Loan or Construction Loan, a Personal Loan may be a suitable option, but the interest rates are generally much higher than Home Equity or Construction loans. Most client use Personal Loans as short-term solution for their renovations, before and rolling them into a competitive home loan.
- Home Equity Loan
If you’re thinking about paying for the renovations with a credit card, please be careful, because while you will not have to go through an application process, the interest rate will be extremely high and could leave you susceptible to falling into a debt trap.
Redraw and offset – are these loan features right for you?
There’s a lot more to a home loan than just the interest rate. The features of the loan can also have a big impact on your total mortgage costs and repayment flexibility, which is why it’s important to understand the potential benefits of a redraw facility and an offset account.
Redraw and offset have one thing in common – they can reduce the amount of interest over the term of the loan. If for example, you have $500,000 outstanding on your loan and $40,000 in either redraw or offset, you’ll be charged interest on only $460,000 (i.e. $500k minus $40k).
But there are subtle differences between the two features.
Redraw is a facility that sits within your loan. The way you accumulate money in redraw is by making extra home loan repayments. The lender will allow you to redraw these extra repayments subject to certain conditions. But it is technically possible the lender may decide one day not to allow you to reclaim the money or change the conditions of redraw. In recent times, an Australian Bank implied this change, which outraged their clients and was subsequently rolled back.
Offset is a separate transaction account that is linked to your home loan account. The way you accumulate money in offset is through deposits, for example, salary payments. The money in your offset belongs to you, so the lender can’t prevent you accessing it.
- Pros: You can use redraw and offset to reduce your interest bill and pay off your home loan sooner.
- Cons: Your lender may charge you a higher ongoing fee or higher interest rate to access these loan features. Also, you may be charged a fee for each redraw transaction.
More homes needed to solve affordability problem
The federal government is aiming to improve housing affordability by increasing the supply of housing, which would be expected to reduce demand and put downward pressure on prices. As a result, the government is attempting to facilitate the building of 1.2 million homes in the five years from July 2024. So, what does the latest homebuilding approvals data show?
Unfortunately, it suggests the government will struggle to achieve its target.
In the five years to September 2024, only 937,950 approvals were issued. This is a drop-off from the five years to September 2023, when 949,469 approvals were issued, according to the Australian Bureau of Statistics.
It’s also worth noting that because some projects never proceed after receiving the green light, the building of 1.2 million homes will require an even greater number of approvals.
But there is some good news: Housing Industry Association economist Maurice Tapang said “the market is past its trough” and more buyers are now choosing to build new homes.
“The cost of homebuilding materials are growing at a more normal pace, while build times for houses are back to pre-pandemic levels,” he added. If that trend continues, it would represent good news in terms of affordability.
If you are buying, re-financing or have any questions, contact me on the below information.
TAG Finance and Loans
Sal Cinque | CEO
03 9886 0800 | loans@tagfinancial.com.au
Disclaimer: The information contained on this page is general in nature. Professional advice should be sought before acting on any aspect on this page. TAG Finance and Loans Pty Ltd ABN 25 609 906 863 Credit Representative Number 483873 National Mortgage Brokers Pty Ltd ABN 88 093 874 376 Australian Credit License 391209.