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  • Writer's pictureSkyward Financial

Property Finance Update - January 24

Hopefully you had a great holiday break and the year has started well for you.

2024 is already shaping up to be a good year for buying property. There are more properties, both residential and commercial, coming to market which should present some great buying opportunities for people with cash and borrowing power.

Buying the dip so to speak.

It is still likely we could see softening in price growth, and see prices deteriorate over the year as people sell as they realise interest rates are not coming down to the end of the year (if then) and not coming down by much.

Most economist forecasts have one of two cuts estimated, which would only reduce the cash rate to 3.85% which still means home loan rates are going to be around 5.5%. A 0.50% reduction in rates on a $1M mortgage will reduce the monthly repayments by about $300.

While this is a nice reduction, it is nothing compared to the massive increase people have seen as an increase in their mortgage repayments. For example, when mortgages were 3% a repayment on a $1M mortgage was about $4,200, now at 6% it is $5,995, a huge $1,795 increase of 42%.

So a $300 reduction will be nice, but it will not move the dial.

If people realise that rates are going to be "higher for longer" which I believe is very likely, which is to say the cash rate will probably stay a 4.35% (or go up) all year, they might sell as the repayments become unpalatable and they deplete their life savings.

We’re now a few weeks into 2024 and there’s been plenty of big news:

  • Investor borrowing up 18%

  • Property prices rise 8.1%

  • Building approvals rise

  • How to be better at money

Read more below.

Every state has recorded a rise in property investor borrowing over the past year, with Western Australia leading the way.

Throughout Australia, investors took out $9.72 billion of home loans in November 2023, which was 18.0% higher than the year before, according to the most recent data from the Australian Bureau of Statistics.

Looking at the individual states, the year-on-year increases in investor borrowing ranged from 3.5% in Victoria to 42.1% in Western Australia.

This strong increase in property investor activity might be because investors are enjoying a double wealth gain right now: during 2023, investors enjoyed increases in both the national median property price (by 8.1%) and national median rent (by 8.3%), according to CoreLogic.

One of the key things to remember with investor loans is that your outcomes can vary significantly from lender to lender. Depending on your financial position and the property you want to buy, different lenders will offer you different loan products, loan sizes and interest rates. As your broker, I will compare the market for you and shortlist lenders that suit someone with your specific scenario.

Australia's median property price reached a record $757,746 at the end of 2023, after another year of growth.

The median price rose 3.0% during the pandemic year of 2020, surged 24.5% in 2021, contracted 4.9% in 2022 and then climbed another 8.1% in 2023, according to CoreLogic.

The median price for the combined capitals ended 2023 at record levels, while the combined regions were just 1.5% off peak.

December was the 11th consecutive month of price gains (see graph) – however, as CoreLogic research director Tim Lawless noted, it was also the smallest of those monthly gains, at 0.4%.

“After monthly growth in home values peaked in May at 1.3%, a rate hike in June and another in November, along with persistent cost of living pressures, worsening affordability challenges, rising advertised stock levels and low consumer sentiment, have progressively taken some heat out of the market through the second half of the year,” he said.

As interest rates move up and down, so does the average person's borrowing power. Borrowing power tended to decline in 2023 and is likely to change again in 2024 as rates evolve. The other point worth mentioning is that your borrowing power can vary significantly from lender to lender. The good news is that I can match you with a bank that wants to lend to someone with your situation.

More owners and developers are planning to construct new homes and renovate existing properties, according to the latest home building approvals data.

In January 2023, only 12,185 building approvals were issued. But after trending higher throughout the year, the number of approvals reached 14,529 in November, an increase of 19.2%.

Please contact me before you start a building or renovation project, so I can explain how the finance works.

Unlike with a regular home loan, where you receive the money in a lump sum, a construction loan involves a series of progress payments (typically five) as your project proceeds. The advantage of this approach is that instead of paying interest on the whole loan amount, you pay interest only on the portion received.

Another difference is that construction loans typically start as interest-only; you can then switch to paying principal and interest once the project is complete.

Becoming a better budgeter can help you save more, invest more and get ahead on your home loan.

To stay on top of your finances, there are two broad approaches you can take.

The first is to plan how much you’ll spend on each category (groceries, entertainment, etc) each month. If you stick to your budget, you’ll know in advance how much you’ll save.

The second approach is to throw out the budget and focus on saving instead:

  1. Decide how much money you want to save each month

  2. Set up an auto-transfer to move this amount of money from a transaction account to a savings account whenever your salary gets paid

  3. Spend whatever is left in the transaction account, however and whenever you like

The first approach suits people who want to pay close attention to their money, while the second is for people who want to ‘set and forget’ their savings.

Whichever approach you take, a good place to begin is to review your last 12 months of expenses, to see how much you’re spending and on what things. You can use that information to identify areas of wastage and set savings targets.


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