What does 2013 have in store for the property market?

What does 2013 have in store for the property market?

Property prices across Australia were on a downward slide during 2012, along with interest rates. Great news if you were buying, but not so great if you were selling.

According to property valuation company RP Data, house prices in Australian capital cities dropped marginally by 0.4 percent in 2012, following a 3.8 percent decline in 2011, while apartments posted a 1.6 percent increase in prices following a 2.6 percent drop in 2011. Overall, prices were 5.7 percent lower at the end of 2012 than their October 2010 peak.

Property experts are forecasting marginal growth in prices in 2013, but despite further interest rate cuts by the Reserve Bank of Australia expected – along with falling mortgage rates – any rise in property values is unlikely to be dramatic.

“Looking into my crystal ball for 2013 I don’t see that too much is going to change.  I believe that demand for credit will still be quite low despite the likelihood of further interest rate cuts,” RP Data senior research analyst Cameron Kusher said. 

“Those markets which have undergone either longer corrections (Brisbane and Perth) or deeper corrections (Darwin) will see values rise over the year, albeit not by very much. I believe Sydney will also continue to see values increase at low levels such as those recorded this year.

“On the other hand, the remaining capitals will struggle to see any value increases over the next year. Overall, this points to fairly similar housing market conditions persisting across the capital city markets throughout 2013.”

One of Australia’s big four banks, NAB, is forecasting a further 0.4 percent increase in prices nationally in 2013, with rises in all states except Victoria. The outlook is better for 2014, with NAB forecasting a 1.7 percent increase over the next two years.

More optimistically, SQM Research, an independent property research company, is forecasting a rise between 4 percent and 7 percent in capital city property prices in 2013, with Darwin (14 percent), Perth (12 percent) and Sydney (9 percent) leading the charge.

According to NAB’s latest Residential Property Index, a fear of losing their job is the biggest factor holding back Australians from purchasing property ­– and therefore keeping prices flat – followed by limited access to credit.

RP Data’s Kusher argues that concern over the global economy will continue to impact Australia’s housing market in 2013 and interest rate cuts are no longer having the same effect in encouraging potential buyers to jump onto the property ladder. Instead, Aussies are saving and paying down debt rather than spending.

If you decide 2013 is the year to buy your first – or next– home, you should start by comparing home loans in the table below or shop around using a comparison site such as RateCity.com.au.

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Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

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.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

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.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.