- While it is no surprise that buyers are unsure, however, opportunities can be missed by those who wait
- House values have declined, while national asking prices have remained relatively flat recently
- Ideal to find out what your maximum borrowing capacity is, but to not borrow above it
With interest rates rising alongside declining property prices, it’s no surprise that many buyers are deciding whether to try and enter the property now, or whether to hold off until 2023 to see if property prices fall even further.
After all, according to CoreLogic, capital city values have reduced by -7.2%, with unit values down by -4.2%.
SQM Research shows asking prices have flattened recently, after increasing dramatically last year.
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Lloyd Edge, author of Buy Now and a well-regarded buyers agent, noted that one of his favourite sayings is “no-one gets ahead by waiting”, which is applicable to the most recent housing boom.
“During the early stages of the pandemic lots of people held back from buying because they were afraid property prices would crash,” he said.
“However, the opposite happened, and property values soared, and those who waited on the sidelines missed out on equity gains from the 2021 boom.”
Mr Edge argued that it is difficult to time the market, and one should enter the market once overcoming the deposit hurdle and having finances sorted.
“Instead of trying to time the market perfectly, you should aim to buy as soon as you have the deposit and get your finances in order. The sooner you get into the market, the more time you will have to benefit from the property’s growth,” he said.
“And even though property prices will most likely continue to decline in capital cities throughout the first six months of 2023, with every interest rate increase, your borrowing capacity will be reduced. This could mean the difference between being able to purchase a $500,000 property instead of a $300,000 one.”
Lloyd Edge
Tips for buying in the current property climate
For those buying in the current property climate, Mr Edge shared his top tips.
- Get your finances in order
- Do your research
- Have a cash buffer for rising interest rates
- Look for high-rental yield properties
- Buy under your maximum borrowing capacity
- Seek out vendors after a quick sale
Get your finances in order
Firstly, Mr Edge said you should be proactive with your financial situation. You should seek out a financial professional, such as a qualified mortgage broker, who can then advise your borrowing capacity, which lenders to use, and secure pre-approval for a loan. You should know your maximum borrowing capacity before you begin your property search, otherwise, you might be seeking a property that is out of your price range. Effectively, wasting your time.
Do your research
In order to get an idea of what a property is currently worth, look at similar properties in the same area, and what they have sold for. Be wary data is often delayed, so take into account it may be a few months old. Don’t be afraid to contact real estate agents; they may be happy to tell you what they sold for.
Have a cash buffer
Given increasing interest rates, it is paramount to leave a significant cash buffer. This ensures you are prepared for any scenario, and are less likely to experience mortgage stress or worse case forced to sell the property due to financial hardship.
Look for high-rental yield properties
Mr Edge added that another way to mitigate the risk of mortgage stress and being unable to make repayments is to buy investment properties that have a high rental yield.
“The rental yield is calculated by dividing the total rental income by the value of the property. In some cases, it’s possible to find properties with rental yields of 8% or more, ensuring that you have positive cash flow after all expenses are paid,” he said.
Buy under your maximum borrowing capacity
Living below you means remains true, and Mr Edge advises that borrowing at maximum capacity can have a detrimental impact on future serviceability, which is especially vital if you plan to build a property portfolio.
“If you buy at your maximum borrowing capacity to begin with, the banks will see you as more of a risk and after one or two purchases the banks won’t lend you any more money,” he said.
Seek out vendors who need a quick transaction
Lastly, Mr Edge highlighted that at any time there are vendors who need a quick sale for a number of reasons, such as death, divorce, hardship or more commonly they have found a house elsewhere and need to sell to fund the deposit.
“Whatever the case, if a vendor needs a quick sale, you’re more likely to purchase the property for a lower price since the vendor doesn’t have the time to wait for higher offers,” he said.
“If possible, always try and find out from a real estate agent the reason why the vendor is selling. Alternatively, an experienced buyer’s agent can help you source off-market and under-market-value properties using their connections with local real estate agents and expert negotiation skills.”
For those purchasing at an auction. Mr Edge has six tips to help increasing your chances at winning at an auction in the current market.
