The local papers are getting thicker with the arrival of spring as more homes come on to the market. While it means there’s more property to choose from it also means that you are also competing on the sell side. And if it’s a rising market then you could find yourself selling at a lower price and buying at a higher price.
But for those upgrading from their first home to their second, there may be some bargains around, says Matthew Bell, economist at Australian Property Monitors.
“The middle market has not been as strong as the first home owners market so there could be some good bargains there,” says Bell.
Can you afford it?
But of course your property needs to have increased in value since you bought it for an upgrade to be a viable proposition now that many lenders have moved from a 100 per cent loan-to-value ratio to 95 or 90 per cent.
According to figures supplied by Canstar Cannex from the Australian Bureau of Statistics website, property prices have fallen 4.6 per cent in Perth in the two years to June while Sydney has only just managed a 0.7 per cent rise in the last five years. In contrast, Melbourne prices have jumped 30.4 per cent and Brisbane 35.7 per cent over the same five-year period.
So if you had taken out a $300,000 mortgage on a property five years ago with a 100 per cent LVR in Melbourne or Brisbane and had then paid a flat rate of 7.5 per cent on your mortgage over that period (not reality of course, because rates have moved but it make the example easier to understand) then at the end of the period Canstar Cannex estimates you would have paid off $24,802 of your loan.
At the same time your property would have increased more than 30 per cent in value, so let’s conservatively say it would now be worth $390,000.
If you sold the property at $390,000 then after clearing your outstanding mortgage you would have $114,000 as equity for your next property. That means that with a 90 per cent LVR, you theoretically could look for a million-dollar property, although you would need sufficient money to service the loan! And an $886,000 loan would need $6547 in repayments each month, so perhaps for most it would be wiser to set your sights lower.
Of course none of these figures take into account stamp duty which will now be payable on your property as you are no longer a first home buyer. Stamp duty varies between States but in this Victorian example it would be a hefty $55,000. And there are also the real estate agent and legal fees to take into account.
Given all that, it’s probably wiser to take smaller steps up the property ladder than jumping from a $390,000 property to a million-dollar one! And if you had bought in Perth with the same scenario, you might not have been in a position to upgrade at all as you might still fail to meet the 90 per cent LVR as your property has gone down in value.
Of course all these figures are ballpark and are just meant to paint a picture.
Buy or sell first?
Either way, if you are thinking of upgrading you will be faced with the perennial dilemma…should I buy first or sell first?
Buying first could mean you are forced to sell at a lower price. But it does mean you have somewhere to move to without having to go to the expense of a bridging loan.
And selling first means that you may not have to worry about bridging finance but you may be faced with having to rent for a while (and all the costs and inconvenience associated with that) if you cannot find something to buy in time.
One way around this is to seek a delayed settlement, whether you’re buying or selling first so that you give yourself time to execute the other part of your moving transaction.
Buyers agent Patrick Bright suggests you ask for a 12 week settlement period which will give you an extra six weeks to either find a new property or sell your existing one.
Hopefully that way you will be able to seamlessly move from your existing property to a new one without having to pay out what is ostensibly two mortgages with a bridging loan. If you do end up with a bridging loan, consider capitalising the interest to minimise your payments.
- More properties come on the market in spring
- Second home market should offer some bargains
- Can you meet the tougher LVRs?
- Buy or sell first dilemma: both sides have pros and cons