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What is equity?

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The equity in your home can be used to secure finance for a variety of things. It might be a home extension; an investment property; a new car; or another big-ticket purchase.

Knowing how to use your equity effectively and making it work for you could be an invaluable wealth-building tool.

Let’s look at what equity is, how it grows and how you can access it.

Equity explained

Equity is the proportion of your property that you actually own. In other words, it’s the difference between the market value of your property and your loan balance.

Let’s say your property’s market value is $400,000 and you owe the lender $220,000. Your total equity is $180,000.

Then there’s your useable equity. Banks will typically lend you 80% of the value of your home, minus what you owe on it.

In the scenario above, your useable equity would be the value of your property at 80%, $320,000, minus your mortgage of $220,000 = $100,000.

In some instances, you may be able to borrow more if you take out Lenders’ Mortgage Insurance.

How does equity grow?

The property’s value increases

If your property goes up in value, so too will your equity.

  • To help ensure your property appreciates in value:
  • Spend plenty of time researching the area and the property (talk to us if you need guidance in researching the area/property).
  • Look for areas experiencing economic growth. More jobs mean more people will be moving there and there will be higher demand for housing.
  • Ensure the property is close to amenities like public transport, schools and shops.
  • Investigate any zoning changes or future developments that could affect your property’s value.
  • Choose a property that will appeal to as many future buyers as possible.
  • Consider renovating to drive up the property’s price tag.

Your debt decreases

Another way to grow your equity is to pay down your mortgage.

By decreasing the amount you owe the lender, the proportion of the property you own will increase.

You can potentially help reduce your debt quicker by:

  • Choosing a home loan that allows you to make extra repayments.
  • Making repayments more often (weekly or fortnightly, rather than monthly).
  • Opting for a shorter-term loan that could help you pay off your debt sooner.
  • Using loan features such as offset accounts that may help you decrease the amount of interest you pay and aid you in building your equity

How can I access my equity?

Refinance

If you need a large amount of money, for example, for a deposit for your next property, you may consider refinancing to unlock your equity.

This involves taking out a new loan to pay off your old mortgage, with some money left over – that is, your equity.

To find out how much equity you have, your property will need to undergo a valuation. The bank will consider the property’s current market value, your income, expenses and debt levels when assessing your application.

Top-up your loan

Increasing or topping up your existing loan could allow you to unlock extra funds.

Your lender will consider the amount of equity in the property and your current financial circumstances when deciding whether you’re eligible for a top-up loan.

Remember to budget for any increase in your repayments as a result of topping-up your loan.

Other options 

If you need funds for smaller renovations, a line of credit may be the way to go.

Lines of credit allow you to access your equity up to an approved limit.

Other options like redraw facilities may also work for you. These give you the ability to access any additional repayments you’ve made on your loan above the minimum amount.

Like to know more?

Equity is an extremely useful resource and it’s important to understand how you could be using yours to grow your wealth and achieve your lifestyle goals.

To get started, give us a call today to talk through how you can unlock your equity – we’re here to help!

Property Market Update – February 2022

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The property market is up and running; gaining momentum after the summer holidays.

January is typically the quietest month for property sales, but activity across Australia was about 15% higher than January last year, and almost 40% higher than the previous five-year average.

Although property prices have continued to rise, albeit at a slower pace, there has been speculation that property prices could come down in 2023 in line with potential interest rate hikes.

If you’re thinking about a property purchase, it’s a good time to touch base with us about pre-approval, so that you’re ready to buy when the time is right.

Interest rate news

At its first meeting for the year, the Reserve Bank of Australia (RBA) decided to keep the cash rate on hold at the historically low level of 0.10 per cent.

RBA Governor, Philip Lowe, said inflation had picked up quicker than the RBA had expected but remained lower than in many other countries.

“The headline CPI inflation rate is 3.5 per cent and is being affected by higher petrol prices, higher prices for newly constructed homes and the disruptions to global supply chains,” he said.

“As the Board has stated previously, it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target band.”

Bottom line: now is the time to take advantage of the low interest rates.

Home value movements

National housing values rose by 1.1% in January, with five of the eight capital cities recording a modest increase in the monthly rate of growth.

CoreLogic’s Research Director Tim Lawless said housing stock was thinly traded during January and it would be important to monitor the trend as transactional activity picked up.

“As the volume of home sales moves out of seasonal lows, we should get a firmer reading on how 2022 is shaping up,” he said.

“The early indication is that housing markets are starting 2022 with a similar trend to what we saw through late last year. Values are still broadly rising, but nowhere near as fast as they were in early 2021.”

“A softening in growth conditions has been influenced by less government stimulus, worsening affordability, rising fixed term mortgage rates and, more recently, a slight tightening in credit conditions, and a surge in new listings through the final quarter of last year.”

Meanwhile, auction activity is continuing to ramp up across the combined capital cities.

Some of the smaller capitals are leading the way, with Brisbane, Adelaide and Canberra recording auction volumesmore than double those of this time last year.

All dwellingsAuctionsClearance ratePrivate saleMonthly home value change
VIC23678%917▲ 0.23%
NSW23276%1126▲ 0.62%
ACT4892%42▲ 1.67%
QLD15378%1087▲ 2.34%
WA3100%509▲ 0.64%
NT1100%15▲ 0.46%
TAS00%136▲ 1.19%
SA10590%268▲ 2.18%
* Monthly Home Values figures as of 31 January, 2022
* Australian auction results, clearance rates and recent sales for the week ending 30 January, 2022.
* The clearance rate is preliminary and current as of 11:41 am AEDT, 31 January, 2022.

Looking to buy your first home, next home or an investment property? Get pre-approved on your finance so that you’re ready to snap up a bargain when you find one.

 

Additional sources
CoreLogic RP Data Daily Home Value Index: Monthly Values

Lending & Property Update – February 2022

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As we launch into a new calendar year, markets worldwide have slumped against inflation fears, and Australia has not been immune.

Many economists previously held the viewpoint that a rate-rise in 2022 was unlikely, however recent developments seem to have everyone doing an about-face. February’s RBA meeting has flagged a number of economic pressures that likely mean a rate hike is only a matter of time.

Fixed interest rates are yet to react to the Reserve Bank of Australia (RBA) Governor’s February commentary, however over the past few months, rates have been creeping up regardless. During and post-lockdown, fixed rates for owner occupier properties we averaging below the 2% mark, however now rates this low are rare. Many fixed rates seem to be comparable to current variable rates, however there are still a few bargains around.

Credit growth in December has remained strong with a 0.8% increase leading to an overall growth of 7.2% for the year – the highest in 13 years. In particular, post -lockdown business credit grew by 1.1%, which was after a 1.6% increase in November. Demand here is expected to stay strong, considering the many government incentives available.

The record run in the property market is continuing, however the pace seems to have slowed a little. The three-month growth rate in dwelling prices has slowed slightly to 3.4%, however strong demand continues. During the first round of lockdowns, regional markets seemed to outperform their city peers, which is trend that is continuing into 2022.  Brisbane and Adelaide markets are now the outperformers amongst the capital cities. Overall, the forecast for 2022 is that dwelling prices will continue to new highs, however the much-anticipated rate rise will most likely put the brakes on as all home owners’ repayments start to creep upwards.

Take control of your budget

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January: it’s that time of year when many of us begin to feel remorse – not just about all those Christmas pies we overindulged on but also about our festive spending blowout.

Last Christmas, credit card spending plunged Aussies $24.3 billion deeper into debt. It’s a worry, particularly for those in the market for a property purchase in 2022.

If your finances have taken a pounding of late, here are some tips to help get you back on track.

Reassess your budget

It’s a new year, time for a new budget.

Create your 2022 budget, taking note of all income and outgoings.

Be sure to include fixed expenses (like rent and electricity), debt (credit card, loans, etc.) and unexpected expenses (car repairs and pet bills).

Hint: Moneysmart’s budget template is a great free tool to help you work out exactly where your money is going.

Shop around

While you are reassessing your finances, it’s a good idea to shop around to ensure you’re getting the best deal.

Get in touch with everyone from your insurance company to your electricity provider and ask whether they can offer you a discount or a better deal. You’d be surprised at what they’ll come back with if they think you may go elsewhere.

If you already have a mortgage, ask your finance broker to compare the market for you. It may be a good time to consider refinancing to a more competitive rate.

Get serious about saving

Consider what your ‘need to haves’ versus your ‘nice to haves’ are.

You might need to ditch your gym membership or reassess your social habits to supercharge your savings goals.

Remember, when you apply for a home loan, particularly as a first home buyer, lenders will want to see an established history of regular savings before they lend you the big dollars.

Set your savings goal

Set yourself a savings target so that you can factor it into your budget and work towards it.

If you’re planning a property purchase, we can run you through how much money you’ll need for your deposit. In general, we suggest aiming for 20% of the purchase price to avoid paying Lenders’ Mortgage Insurance.

Knock over your debts

Lenders assess your creditworthiness on the amount of money you already owe, your ability to repay your debts and your capacity to take on more debt.

Paying down any credit card debts or personal loans prior to applying for a home loan could improve your borrowing capacity and give you the best chance of being approved.

Hint: If you have several credit cards, consider cancelling them even if the balance is zero. Lenders consider the credit limit on your cards and count this as potential debt when approving loan applications.

Consolidate if it’s right for you

If you have lots of different types of debt, it may be worth consolidating.

With this option, you essentially roll your debts into one, usually using a loan with a lower interest rate. In some instances, you can roll them into your home loan if you have one, or a personal loan that has a lower interest rate overall.

There are pros and cons of debt consolidation, so it’s important to speak to your financial advisor or accountant about whether this is the right option for you.

Like to know more?

If you’re planning on applying for a home loan in 2022, speak to us about how to get your finances in order. We can give you a heads up about what lenders will be looking for and how to optimise your chances of being approved for a loan.

We’re here to help, so please get in touch today!

What to consider before renovating

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Renovating your property is a great way to potentially drive up its value. If it’s an investment property, you may also secure a better rental return.

However, before you dive in, it’s important to weigh up the costs versus the benefit of renovating.

Here are a few pointers to help you decide whether renovating is the right choice for you.

Work out your goals

Before renovating, think about your long-term goals.

  • If it’s your home, do you want to stay put in the neighbourhood or are you likely to want a change of scenery in the next few years?
  • How does the prospect of selling and moving on compare to renovating and staying put?
  • If it’s an investment property, is the financial outlay of a renovation likely to pay off (tip: talk to your financial advisor about your investment strategy).

Create a budget

How much is it going to cost to turn your daggy yet loveable 1960s fixer-upper into a modern masterpiece? Plan your renovations and put together some costings.

The general rule of thumb is to spend no more than 10 per cent of your property’s value on renovations.

To help give you an idea, here’s how much you can expect to pay to renovate areas of your property that commonly add value for resale.

Kitchen

If your kitchen benchtop is an antiquated electric blue and your appliances sound like they are going to take off when you turn them on, it might be worth looking into a kitchen upgrade.

It’ll cost you, but it may be worth it if your goal is to sell your property eventually.

According to those in the know at Hipages, expect to pay the following for your kitchen reno:

  • $10,000 to $22,000 for a small or budget kitchen
  • $22,000 to $35,000 for a mid-range kitchen
  • $35,000+ for a high-end kitchen.

Bathroom

A flash new bathroom could be a real drawcard for future buyers or renters.

Depending on factors like the size of your bathroom and the materials you choose, you may be looking to payanywhere from $10,000 to $30,000+ for a bathroom renovation.

The Housing Industry Association found the average bathroom renovation cost $17,000 in Australia.

Repainting

A new coat of paint can do wonders for an ageing property.

The cost depends on the size of the property, whether you are doing the painting yourself or getting someone else in and which areas you paint (inside and outside).

According to Hipages, the average cost to paint the interior of a property (single undercoat and two finishing coats) is about $20 to $30 per square metre.

As a starting point, for a two-bedroom unit, that might work out to $2,500 to $3,500.

For an exterior paint job on a two-storey property, you may be looking at $5,500 to $20,000. For a roof refresh, expect to pay anywhere from $2,800 to $4,500.

How will you finance your renovations?

There are all sorts of different ways to finance your renovations — that’s where we come in!

You could top up your current mortgage or refinance to fund your reno project.

Using funds in an offset account or making the most of a redraw facility could be another option.

In some instances, a construction loan or personal loan may work best.

Speak to us and we will run you through how each of these finance options works, and which may be right for you, based on your individual financial situation and goals. Please get in touch today!