Does size matter?

Does size matter?

When it comes to property investment, size isn’t all it’s cracked up to be. At least not in the traditional perception of big is best. One-bedroom apartments, particularly in inner city areas, are increasingly popular with tenants – and investors are taking note.

One-bedroom apartments are often cheaper to buy than their two-bedroom counterparts, but can achieve similar rents and therefore provide a better return on investment, according to property experts.

“Traditionally if you compare studio apartments, one-bedroom apartment and two-bedroom apartments, the studio has the strongest rate of return, followed by the one-bedder and then the two-bedder,” says real estate agent Mark Dawes, director of Richardson & Wrench South Sydney.

In the inner Sydney suburb of Potts Point, Sydney Links is currently selling a one-bedroom apartment for offers above $350,000 with a potential rental return of $470 per week – which would deliver an impressive rental yield of 6.78 percent.

From a capital gains perspective, one-bedders are also comparable to larger apartments. While in the past, two-bedroom apartments would provide a better capital gain growth than one-bedders, that is no longer the case, according to Dawes. “They tend to rise at the same rate,” he says.

On the other hand, some lenders may be less willing to approve a home loan for a studio or small one-bedder apartment, as size requirements may apply. So it’s worth shopping around, comparing home loan features and asking these questions before you get your heart set on a property!

Trend towards small

The popularity of smaller apartments can be explained by the shrinking size of Australian households. Census figures from the Australian Bureau of Statistics show that the proportion of one-person households increased from 16 percent of all households in 1976 to 24 percent in the 2006 Census, and is expected to rise to 28 percent by 2031. The proportion of two person households increased from 28 percent of households in 1976 to 34 percent in 2006.

Property developers have also caught on to the trend, with a rise in the number of one-bedroom apartments being built. Currently attracting a lot of interest, a new development in Surry Hills, called Short Lane, is made up entirely of one-bedroom apartments.

On the other side of Australia in Perth, new-build studios and one-bedders are also popular, according to the Urban Development Institute of Australia, with 28 percent of recent new apartment sales being studios and one-bedroom apartments.

A question of budget

For most investors, the size of the property they buy comes down to budget, Dawes says. “If you’re going into the inner Sydney market with $500,000 to spend, you don’t have a choice – you’ll be buying a one-bedroom apartment. But if you have a higher budget, you might as well buy a two-bedder with interest rates being as low as they are now. It will give you more scope for growth.”

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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

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What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What are exit and discharge fees?

The Federal Government banned exit fees in 2011, removing one of the biggest barriers to taking switching home loan providers. Lenders can still legally charge a discharge fee, which is payable when you come to the end of your home loan, however these fees are relatively small at an average of $304 while 134 products don’t have them at all.

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How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks.