With so much chatter about the Australian property market, it’s easy to get lost in the noise.

You’ve likely heard various truisms about securing a home loan, but the reality is that there are many options out there. Let’s clear up some common misconceptions and help you find the best path to home ownership.

 

Deposit isn’t a dirty word

One of the biggest myths is that you need a 20% deposit to get a home loan. While it’s a nice ideal, many lenders understand it’s out of reach for a lot of people. Many lenders offer options with home loan deposits as low as 5%, and if you qualify for a government guarantee, you might avoid paying mortgage insurance altogether.

Guarantor home loans are also becoming popular. These allow you to skip a cash deposit by having a guarantor (usually a family member) pledge their home equity. Another option is the Government Equity Scheme, where the government pays 50% of your home loan. This lowers your deposit requirement and monthly repayments but means the government owns half the equity in your home.

You may also be able to use the equity in another property towards the deposit for a new home.

 

A lifetime mortgage commitment

A 30-year mortgage is common because it means smaller monthly repayments, but you end up paying more in interest over time. Depending on your goals, it might be worth considering a shorter term. You’ll have higher monthly payments but save on interest overall. Knowing your financial timeline and cash flow can help you decide what’s best.

 

The Benefits and Pitfalls of Fixed Rates

With talks of interest rates falling in 2025, fixed rates are back in the spotlight. Choosing between fixed or fluctuating rates depends on your financial goals and cash flow. Fixed rates can provide stability, but they are usually higher than fluctuating rates. Some people choose to split their mortgage between fixed and variable rate.

 

When Interest-Only Makes Sense

Interest-only loans have a bad rap but may be useful for some buyers such as property investors. These loans mean you only pay the interest and not the principal, resulting in lower monthly repayments but slower equity growth. Some people start with interest-only payments to manage renovations or cash flow, switching to principal and interest payments later on.

 

Pre-Approval Is No Guarantee

Estate agents love pre-approvals because they show you’re serious and know your budget. Pre-approval can speed up the buying process, but it’s not a guarantee. Lenders still need to complete their due diligence including a property valuation, and most pre-approvals only last three months before needing renewal.

 

Your Path to Home Ownership

With so much advice out there, finding your path to home loan approval can seem daunting. But remember, you have options, and there’s no one-size-fits-all solution. Start the ball rolling by chatting with us about your goals and options. We can provide the facts and help you embark on your journey to owning a home.

 

If you’re ready to take the next step, get in touch with Specialist Mortgage today!

We’re thrilled to celebrate a remarkable achievement for Helen Avis, who has once again solidified her position as one of the country’s top brokers. At the Specialist Finance Group’s 2024 National Awards, Helen was honoured with the WA/NT Broker of the Year Award.

This accolade marks an incredible 4th consecutive win for Helen, having previously claimed the prestigious title in 2021, 2022, and 2023. Her consistent excellence and unwavering dedication to her clients have made her a standout in the industry, earning her a well-deserved spot at the pinnacle of mortgage broking.

Helen’s success is a testament to her commitment to delivering tailored financial solutions, her proactive approach to communication, and her tireless efforts to guide clients through their property journeys.

Congratulations to Helen on yet another exceptional milestone! Your dedication and expertise continue to inspire the entire industry. Here’s to even greater achievements in the years to come!

The Reserve Bank of Australia has kept interest rates on hold at its Melbourne Cup Day announcement.

The Reserve Bank of Australia (RBA) has kept interest rates on hold, with the Melbourne Cup day announcement marking exactly 12 months since the last rate movement took the official cash rate to 4.35 per cent.

The decision on Tuesday (5 November) came as little surprise to most observers, despite lower inflation sparking hopes among some borrowers that rates would be cut.

With rates being kept at their relatively high level for at least the 10 December RBA Board meeting, many prospective property buyers are adopting a wait and see approach.

Research from Mozo revealed that 39 per cent of respondents said they’re waiting for rates to drop before purchasing a property.

Within this group, 16 per cent are holding out specifically for a more affordable home loan, while 5 per cent are hoping that lower rates might ease property prices.

Additionally, 11 per cent expressed caution about locking in a mortgage at the current high rates, and 6 per cent are anticipating better financial conditions with rate cuts.

API Magazine’s Property Sentiment Report Q3 2024, released on Tuesday (see page 11) also found a heightened sense among survey respondents that high interest rates were influencing property prices.

In its latest Statement on Monetary Policy, the RBA said headline inflation has fallen, but underlying inflation is still too high.

“The cash rate will stay restrictive until the Board is confident that inflation is moving sustainably to the middle of our 2–3 per cent target range,” the policy statement noted.

The RBA expects inflation to reach 2.5 per cent by late 2026, meaning interest rates could remain stubbornly unmoved for some time yet.

RBA's inflation forecast graph

(Source: RBA)

“Underlying inflation is expected to ease slowly as demand in the economy moves back into line with supply,” the RBA noted.

“While headline inflation is expected to be in the target range in the first half of next year, part of this is due to temporary cost-of-living relief.

“The outlook is highly uncertain.

“On the one hand, if conditions in the labour market are stronger than expected and productivity growth remains weak, this could slow progress in bringing inflation to target.

“On the other hand, household spending might not increase as quickly as expected, which could mean that inflation returns to target faster (while) heightened geopolitical risks and potential changes to trade and fiscal policies abroad add to this uncertainty.”

Graham Cooke, head of consumer research at Finder, said pressure was mounting for a rate cut in February next year.

“Even though inflation has hit the RBA’s target window of 2-3 per cent, this doesn’t trigger the RBA to automatically start cutting rates – which will disappoint homeowners.

“With a record high 47 per cent of borrowers struggling to make their repayments in October, thousands will be forced to cut back on spending in other areas.

“Many are depending on the multiple rate cuts predicted to come in 2025,” Cooke said.

Academics Aarti Singh, Associate Professor, School of Economics, University of Sydney, and Tomasz Wozniak, Senior Lecturer, University of Melbourne, said those waiting for an interest rate cut may have to bide their time.

“The good news is that the latest CPI number is within the RBA’s band,” Mr Singh said.

“Moreover, this decline was expected by the market, however, since other measures of CPI that exclude the more volatile items are still outside the band, RBA may wait before lowering rates.”

Mr Wozniak was even more forthright.

“We’re not moving anywhere for now,” he said.

“The forecasts from all my models indicate slight downward pressure for the coming months.

“I interpret these predictions as a clear expectation of cuts in the cash rate but at an uncertain horizon.

“Forecasting the breakpoint is always tricky, and the upcoming data announcements will play a decisive role in shaping the forecasted trajectories in the following months.”

Strong jobs outlook could stall a rate cut

Tim Lawless, Research Director at CoreLogic Asia Pacific, said the data simply hasn’t been compelling enough to bring rates down just yet.

“At the very least, the decision to hold interest rates at 4.35 per cent should provide a further boost to household confidence, along with clear signs that inflation is moving in the right direction and the next move is likely to be down, albeit with some uncertainty around the timing of cuts.

“A further rise in sentiment is a positive for housing, but we aren’t likely to see stronger housing outcomes until borrowing capacities improve and barriers to mortgage serviceability assessments are reduced.”

While strong labour markets are a good thing for Australians, with only 4.1 per cent of the labour force being unemployed, the RBA is looking for labour markets to loosen. A rise in unemployment implies less upward pressure on wages which would support inflation moving sustainably within the target range.

The RBA has forecast the unemployment rate to reach 4.3 per cent by December before rising to 4.4 per cent by mid-next year. Similar to the path of inflation, the trajectory is heading in the right direction, with unemployment rising from a low of 3.5 per cent in mid-2023, briefly reaching 4.2 per cent in July before slipping back to 4.1 per cent in August and September.

“Households are weathering the storm of high interest rates and high cost of living pressures by pulling back hard on their discretionary spending, which can be seen in relatively weak retail spending outcomes,” Mr Lawless said.

“Also, household savings accrued through the pandemic have largely been drawn down.

“The combination of high interest rates, cost of living pressure and less savings has seen mortgage arrears return to around pre-pandemic levels.

“It’s clear the flow of economic data will be central to understanding where the cash rates moves from here.

“Almost certainly, the next move is down, but the timing of a rate cut remains uncertain,” he said.

Globally, the indicators are also positive.

Inflation globally

Inflation in advanced economies has continued to ease broadly as expected, or in some cases a little quicker, giving central banks confidence that it is returning sustainably to their targets.

The RBA’s Tuesday statement noted that while it remains above rates consistent with central banks’ targets in most peer economies – with Australia sitting at the upper end of the range – many central banks have communicated greater confidence that inflation is returning sustainably to their targets.

“That confidence reflects further progress on disinflation, a slackening in labour markets and in some cases weaker-than-expected recent activity – all of which is consistent with the restrictive stance of monetary policy in most advanced economies.

“With upside inflation risks seen to be receding, some central banks have become more attentive to downside risks to activity, labour markets and, in some cases, inflation,” the RBA noted.

Article Q&A

What is the official cash rate in Australia?

The official cash rate in Australia is 4.35 per cent, following the Reserve Bank of Australia keeping rates on hold on 5 November 2024.

First-time buyers of an investment property need to be aware of the pros and cons of the different loan types available and some of the hidden costs and hurdles that can shape an investment’s success.

Investing in residential property is a widely embraced wealth-building strategy in Australia, but for many, particularly first-time buyers, the challenge lies in affording a property in the desired location.

Rising property prices and the complexities of securing a loan often make property ownership feel out of reach.

However, alternatives like rentvesting offer first-time buyers a way into the property market by allowing them to rent where they want to live while investing in a more affordable area, providing a practical solution to the challenges of property ownership.

Investment property loans, unlike owner-occupied home loans, are specifically designed for buying properties aimed at generating rental income.

Loans for investors typically come with higher interest rates because investment properties carry more risk for lenders, particularly if the borrower relies on rental income to cover loan repayments.

Therefore, these loans generally come with different terms and stricter lending criteria than mortgages, such as larger deposits, stronger credit scores, and assessments of borrowing capacity factoring in other existing debt.

Types of investment property loans in Australia

There are generally three common types of home loans available, each primarily defined by the structure of the interest rate applied to repayments.

Fixed rate loans

A fixed rate loan locks in the investor’s interest rate for a set period. This offers stability in repayments, shielding the investor from interest rate fluctuations, but they may miss out on any decreases in interest rates.

Variable rate loans

With a variable rate loan, your interest rate can change based on the market. While this offers flexibility and the potential for lower repayments if rates drop, it also carries the risk of increased repayments if rates rise.

Split loans

A split loan offers the best of both worlds, combining elements of both fixed and variable rates. A portion of the loan has a fixed rate, while the remainder is variable, allowing the investor to balance stability and flexibility.

Terms of repayment on property loan

There are two terms of repayment on which loans can be taken: principal and interest or interest-only. Each term impacts how an investor manages cash flow and debt repayment over the loan period.

Principal and interest loans

With a principal and interest loan, an investor repays both the borrowed amount (principal) and the interest charged over the term. This is a more conservative approach to borrowing, as it ensures that the investor is steadily reducing their debt over time.

Interest-only loans

Interest-only loans allow investors to pay just the interest on the loan for a set period. This results in lower monthly repayments, freeing up cash flow. However, at the end of the interest-only period, repayments will increase as the investor will begin repaying the principal as well.

Interest rates vary between lenders and loan types, and even a slight difference can significantly impact investment returns. Comparing both fixed and variable rates will help an investor choose the option that aligns best with their investment goals.

When considering repayment terms, the investor will need to balance cash flow with long-term equity building. Interest-only loans, for instance, provide lower monthly repayments, which may improve short-term cash flow but won’t reduce the investor’s debt principal.

Loan servicing ratio, additional expenses

Investors should assess their own loan servicing ratio (LSR) considering rental income, personal income, and ongoing expenses like maintenance and taxes. A strong LSR is crucial for qualifying for larger loans.

Many loans come with features such as offset accounts, which are savings or transaction accounts linked to the home loan and redraw facilities that allow access to extra repayments or help reduce interest.

Refinancing an investment loan when market conditions shift can secure better terms or adjust the loan to meet evolving financial goals and is generally most beneficial for those who had a deposit of at least 20 per cent when securing a loan.

If the investor’s equity is below 20 per cent, they may need to pay lenders mortgage insurance (LMI) again when refinancing, or they might not qualify. If the investor is thinking about refinancing, getting a property revalued could help lower the loan-to-value ratio (LVR), potentially reducing the interest rate.

In addition to choosing the right loan type, repayment terms and interest rate options, investors should also consider property depreciation as a critical element in their investment strategy. Depreciation allows property investors to claim tax deductions on the wear and tear of the building and its plant and equipment assets over time, effectively lowering the investor’s taxable income, enhancing cash flow.

By leveraging both loan structures and depreciation schedules, investors can optimise their financial outcomes and mitigate some of the costs associated with investment property ownership.

Article Q&A

What are investment loans?

Investment property loans, unlike owner-occupied home loans, are specifically designed for buying properties aimed at generating rental income. Loans for investors typically come with higher interest rates because investment properties carry more risk for lenders, particularly if the borrower relies on rental income to cover loan repayments. These loans generally come with different terms and stricter lending criteria than mortgages.

What property loan types are there in Australia?

There are generally three common types of home loans available, each primarily defined by the structure of the interest rate applied to repayments, namely fixed-rate loans, variable rate loans, and split loans.

What are the terms of repayment on a property loan?

There are two terms of repayment on which loans can be taken: principal and interest or interest-only. Each term impacts how an investor manages cash flow and debt repayment over the loan period.

Inflation has fallen to its lowest level since the Covid pandemic, raising hopes among borrowers that interest rate cuts could now be imminent.

For the first time in three-and-a-half years, inflation has returned to the Reserve Bank of Australia’s (RBA) target band of 2 to 3 per cent.

The consumer price index fell to 2.8 per cent annually, after rising just 0.2 per cent in the September quarter, according to Australian Bureau of Statistics (ABS) data released Wednesday (30 October).

Michelle Marquardt, ABS head of Prices Statistics, said the September quarter’s rise of 0.2 per cent was the lowest outcome since the June 2020 quarter fall, which occurred during the Covid outbreak and was driven by free childcare.

“Annually, the September quarter’s rise of 2.8 per cent was down from 3.8 per cent in the June quarter. This is the lowest annual inflation rate since the March 2021 quarter,” Ms Marquardt said.

In December 2022 inflation was at 7.8 per cent and interest rates soaring, but these latest figures will embolden calls for the RBA, and subsequently banks, to cut interest rates.

All groups CPI, Australia, quarterly and annual movement (%)

Economists do not expect an interest rate cut until at least February, while bond markets are fully priced for the RBA to cut the cash rate to 4.1 per cent around May 2025.

While the headlines will raise a chorus of voices demanding an interest rate cut, other remain less convinced of that viability – not least the RBA.

RBA Governor Michele Bullock has made it clear her Board will be watching their preferred measure of underlying inflation, the trimmed mean. This reading fell to 3.5 per cent in September, a 2.5-year low, but still comfortably above the central bank’s 2 per cent to 3 per cent inflation target band.

The RBA expects inflation to jump back to 3.7 per cent late next year when the state and federal government energy rebates expire. They have ruled out a near-term reduction in the current 4.35 per cent official cash rate.

CBA on Wednesday also pushed back its forecast for the timing of the first cash rate cut from December of this year to February 2025, following the release of the inflation figures.

The economic team at Australia’s biggest bank now also expects a total of four cuts by the end of 2025, rather than five as previously forecast.

As a result, all four big banks now expect the first cut will be in February 2025 with the total number of cuts ranging from three to five.

Cash rate bank forecasts table

The latest result is the seventh quarter in a row of lower annual trimmed mean inflation, down from the peak of 6.8 per cent in the December 2022 quarter.

Rents rose 1.6 per cent for the quarter and 6.7 per cent annually, down from the annual increase of 7.3 per cent in the June quarter. The other significant quarterly price rises were recreation and culture, up 1.3 per cent, food and non-alcoholic beverages, up 0.6 per cent, and alcohol and tobacco, up 1.3 per cent.

The ABS will also release data on September retail trade and household spending later this week.

Housing costs weigh heavily on CPI

Housing costs are a major component of the inflation figure. Over the past year, rents are up by 6.7 per cent while the cost of new dwelling purchase is 4.8 per cent higher, well above the wider inflation rate.

Master Builders Australia (MBA) has warned temporary energy relief and rent assistance measures are masking systemic housing inflationary issues.

Denita Wawn, CEO, MBA, said housing costs continue to put upward pressure on the inflation rate and are prolonging the pain being felt by families.

“Increasing the supply of new homes, including rental accommodation, is crucial.

“A number of barriers continue to hamstring the industry’s ability to speed up the delivery of new homes, including high building costs, labour shortages, CFMEU disruption and pattern EBAs (enterprise bargaining agreements), and planning delays.

“Meaningful action to address supply-side barriers in the housing market is not happening fast enough.”

Even if an interest rate cut is not immediately forthcoming, the latest ABS data has at least pushed the prospect of a rate rise into the background.

Real Estate Institute of Australia (REIA) President, Leanne Pilkington, said the falling CPI figure and global direction of inflation and interest rates meant borrowers could reasonably expect that the RBA’s next move will be down and not up as feared.

“Retail and household spending numbers will provide further pointers on consumer behaviour before next week’s RBA Board meeting and be assessed with the RBA’s twin objectives of not only taming inflation but also achieving full employment.

“While the September unemployment rate remained unchanged due to increased employment it needs to be remembered that about 70 per cent of new jobs in the past year have been in non-market or public jobs and don’t reflect market conditions and underlying economic demand.”

“Against this background and a consistent downward trend in inflation, borrowers may anticipate that a rate cut cannot be far away,” concluded Ms Pilkington.

Andrew Canobi, Director of Franklin Templeton Fixed Income, was less convinced.

“The inflation number all but kills whatever glimmer of hope remained of a 2024 rate cut.

“The headline is artificially low through electricity subsidies of course and while the underlying trimmed mean is inching closer to target, it isn’t close enough to the RBA’s target; services inflation was actually a bit stronger at 4.6 per cent year-on-year.

“The still solid labour market is also telling the RBA there’s no reason to rush into a rate cut,” Mr Canobi said.

Property market defying loan stress

While interest rates remain stubbornly high and are testing the financial resolve of millions of borrowers, solid growth in sales and mortgage activity in the three months to 30 September 2024 shows momentum still continues to build in the national property market.

The latest PEXA Property and Mortgage Insights report shows Australia’s mainland states saw an 11.1 per cent increase in property settlement volume and a 19.8 per cent increase in value over three months. There were 183,288 settlements with a total value of $178.3 billion in the September quarter.

Queensland again recorded the highest number of residential settlements, while Brisbane maintained its position as Australia’s second most expensive capital city, behind Sydney.

Across the mainland states, all capital cities and regional areas experienced near double-digit growth compared to the September 2023 quarter, with the exception of regional Victoria. Regional WA reported standout growth, with residential volumes surging by 19.5 per cent.

In NSW, the top 10 postcodes for residential settlements were all within Greater Sydney, with areas such as Marsden Park and Oran Park in Sydney’s west continuing to attract significant interest due to their large-scale greenfield housing developments. So too in Victoria, with outer Melbourne Craigieburn and Tarneit performing strongly, while in Queensland the top postcodes were predominantly located on the coast. In South Australia the outer Adelaide suburbs of Munno Para West and Andrews Farm topped the list, followed by Mount Barker in the Adelaide Hills.

In mortgage trends, the number of home loans issued increased by 16.2 per cent to a total of 137,186, with more than 96 per cent of these loans for residential property.

PEXA Group’s Chief Economist, Julie Toth, said the reports show that demand for new housing continues to outstrip supply, resulting in an increase in more buyers seeking existing properties and prices, with strong growth in both capital cities and regional areas.

“Growth in new housing supply – including housing and apartments – has continued to lag behind growth in demand for new housing nationally in most locations,” Ms Toth said.

“New homes are taking longer and costing more to build than in the past. High labour and material costs have added to the rising price of new builds. These capacity constraints are pushing more buyers into the market for existing home and pushing home prices higher.”

Ms Toth said strong population growth and low household sizes also continued to support strong underlying demand for housing. In terms of mortgage trends, Ms Toth said consumer sentiment was tentatively improving in response to better conditions, but debt-related sentiment remained highly cautious.

Article Q&A

What is the inflation rate in Australia?

The consumer price index fell to 2.8 per cent annually, after rising just 0.2 per cent in the September quarter, according to Australian Bureau of Statistics (ABS) data released on 30 October 2024.

When will the RBA cut interest rates?

Economists do not expect an interest rate cut until at least February 2025, while bond markets are fully priced for the RBA to cut the cash rate to 4.1 per cent around May 2025.

What is driving inflation in Australia?

Rents rose 1.6 per cent for the quarter and 6.7 per cent annually, down from the annual increase of 7.3 per cent in the June quarter. The other significant quarterly price rises were recreation and culture, up 1.3 per cent, food and non-alcoholic beverages, up 0.6 per cent, and alcohol and tobacco, up 1.3 per cent.

Are interest rates impacting the property market?

The latest PEXA Property and Mortgage Insights report shows Australia’s mainland states saw an 11.1 per cent increase in property settlement volume and a 19.8 per cent increase in value over three months, suggesting interest rates had not overly suppressed the property market.

For almost two years, national property prices have recorded month-on-month gains but 2025 could present a different story.

Despite property investor demand approaching record levels a leading economist is forecasting property price growth to stagnate in 2025.

Property investors continue to pour into the market, with the Australian Bureau of Statistics (ABS) lending indicator data released Friday (4 October) showing that the value of new investor loans rose 1.4 per cent to $11.7 billion, 34.2 per cent higher than August 2023 and close to the previous peak in January 2022.

The total value of new housing loans also rose, up 1.0 per cent in August to $30.4 billion.

The pace of growth among owner-occupiers was roughly half that of the investor market segment, with those loans rising 0.7 per cent to $18.7 billion, 16.8 per cent higher than August 2023.

The increase in value of new loans is not entirely down to rising property prices, given national property in September only rose by 0.4 per cent, a decline on the 0.5 per cent of the previous month, according to CoreLogic.

Maree Kilroy, Senior Economist for Oxford Economics Australia, said the property market would continue weaken in the year ahead.

Four capital cities recorded a fall in dwelling values through the September quarter, led by Melbourne where values were down 1.1 per cent. Canberra, Hobart and Darwin also recorded declines over the quarter.

“The deceleration in price growth is broadening,” Mr Kilroy said.

“Advertised stock is running ahead of demand in several markets and affordability pressures are pushing buyers towards lower prices properties, which is evident in the lower quartile price bracket holding up, quarterly unit price growth finally outpacing houses and the faster pace of growth seen by the mid-tier cities.”

Following a 7.5 per cent lift in the median combined capital city house price in the 2024 financial year, Ms Kilroy said they now expected notably softer growth over FY2025, with interest rates likely on hold until June quarter 2025.

Ms Kilroy told API Magazine that a decline in capital growth rates in one city would offset any national impact from other cities’ continued growth.

“Our expectation for softening growth into 2025 is due to slowing momentum already observable in monthly price growth continuing, primarily in Sydney.

“Even with currently stronger price growth in Perth, Brisbane and Adelaide relative to the national figures, we think peak quarterly growth for these cities is behind us.”

Ms Kilroy’s observation about the lower quartile market holding up is playing out across the country.

Across the combined capitals, lower quartile dwelling values have increased by 12.4 per cent over the past twelve months compared with a 3.8 per cent rise in values across the upper quartile.

Home Value Index September 2024

In Sydney, the fastest growing region is Western Sydney suburb Fairfield, up 13.0 per cent over the year to a median price of $1,121,396. Even Melbourne’s declining property market had the outer northwest TullamarineBroadmeadows region top that state’s growth list (1.9 per cent, $671,185).

All the areas that recorded growth rates above 20 per cent were in the mid-sized capitals’ affordable outer suburbs.

Perth had five such (SA3) regions, namely Swan (30.5 per cent), Kwinana (30.1 per cent), Gosnells (29.1 per cent), SerpentineJarrahdale (28.6 per cent) and Armadale (28.4 per cent). Playford and Salisbury in Adelaide’s north notched up annual capital growth of 21.6 and 20.0 per cent respectively, while Brisbane’s SpringwoodKingston area clocked up 23.7 per cent.

Regionally, where capital growth has lagged the capitals, only WA’s Mid West region (27.4 per cent) and north Queensland’s Townsville (25.8 per cent) cracked the 20 per cent barrier.

Six of the eight capitals have seen unit values rise by more than house values, or in the case of Melbourne, record a smaller decline, over the September quarter.

Property price growth slowing

National property values have entered their 21st consecutive month of growth, but the rate of increase is losing momentum due to persistent affordability pressures, high interest rates, and subdued consumer sentiment.

Strong housing demand, driven by population growth and tight rental markets, has continued to support price increases, even amid broader economic challenges. However, as more homes are listed for sale, the balance between supply and demand has begun to shift, offering buyers more choice and slowing price growth.

Eleanor Creagh, Senior Economist, PropTrack, said housing demand remains resilient.

“The number of homes listed for sale has lifted, providing more choice and slowing price growth, however, the pace of growth remains varied with differing supply and demand conditions driving diverse performance across the country.

“Though prices are rising, sustained high interest rates, cost of living pressures, weak consumer sentiment and affordability constraints are weighing.

“Buyers now have more properties to choose from, though uncertainty around the timing of interest rate cuts is likely also having an impact on the pace of growth. Ahead, prices are expected to lift through the typically busier spring selling season, albeit at a slower pace.”

Predictions about when interest rates will be cut vary but most are expecting it to happen by mid-2025 at the latest.

Bendigo Bank’s Chief Economist, David Robertson, on Friday said rate relief is finally becoming more imminent.

“With markets receiving a boost from the latest monthly inflation indicator, where headline CPI fell to 2.7 per cent – this fall in CPI and core inflation bodes well for Q3 CPI data, released on 30 October,” Mr Robertson said.

“Thankfully, the latest RBA policy meeting no longer considered a rate hike as an option – aligned to our view since January that the RBA would be on hold for all of 2024.”

“As a result, we predict the first rate cut here in Australia to occur by May 2025, with a strengthening case for February next year.”

“Variables remain, however, when it comes to how quickly Australian’s will see that illusive first rate cut, the first being the pace of inflation moderating; the second, what the impact of tax cuts and cost of living measures are on household demand; and thirdly – labour markets.”

 

Additional reporting by Sasha Bennett

 

 

Article Q&A

Where are Australian property prices heading in 2025?

Following a 7.5 per cent lift in the median combined capital city house price in the 2024 financial year, a leading economist said they now expected notably softer growth into 2025, with interest rates likely on hold until June quarter 2025.

Where are property prices falling in Australia?

Four capital cities recorded a fall in dwelling values through the September quarter, led by Melbourne where values were down 1.1 per cent. Canberra, Hobart and Darwin also recorded declines over the quarter.

Where are property prices rising fastest in Australia?

All the areas that recorded growth rates above 20 per cent were in the mid-sized capitals’ affordable outer suburbs, with Perth suburbs dominating the list.

Weighing up whether to buy or build is a choice that comes with its own set of advantages and disadvantages, particularly in terms of financing options, ease of tenancy, location and capital growth, risk factors and tax benefits.

Now is a promising time to be a property investor in Australia.

Despite ongoing challenges in the industry, the property market has shown resilience. House values have risen by 8.3 per cent over the past year. Additionally, the number of residential listings is over 7 per cent higher than the five-year average and with the current imbalance between supply and demand for rental properties, there is a steady stream of tenants seeking housing.

For landlords who are in the position to grow their property portfolio, the challenge lies in deciding whether a new or second-hand property best suits their investment strategy.

Each option comes with its own set of advantages and disadvantages, particularly in terms of financing options, ease of tenancy, location and capital growth, risk factors and tax benefits. This article aims to provide a thorough analysis to help you make an informed investment decision.

Financing

Financing new properties can be more straightforward for new-build investors. Many developers offer attractive financing packages, including lower deposit requirements, extended payment terms and even interest-free periods during construction. New properties also require lower initial maintenance costs due to new construction.

A new build often requires a higher initial purchase price compared to similar second-hand properties, which offer more leverage for negotiations.

Financing second-hand properties might involve more traditional mortgage routes, which can vary based on the property’s age, condition and location.

Lenders may require a more detailed property inspection and valuation, potentially leading to higher interest rates or lower loan-to-value (LVR) ratios. A second-hand property also runs the risk of requiring higher initial maintenance and renovation costs.

Tenants

Attracting desirable tenants is easier when providing modern amenities, energy efficiency and overall appeal. High-quality finishes and contemporary designs can justify higher rental prices, making these properties attractive for higher-income tenants.

Setting higher rental prices on a new build may, however, reduce the number of potential tenants.

Established properties might require more effort to attract tenants, especially if the property is older or in need of renovations. A second-hand property might also generate lower rental income compared to new properties, which will impact the rental yield due to higher maintenance and renovation costs.

Location and capital growth

New properties in prime or emerging areas can offer significant capital growth potential, especially if the surrounding infrastructure and amenities develop as anticipated. However, the higher initial purchase price might limit immediate returns and new properties in already saturated markets may see slower appreciation.

Older properties are often located in desirable, established neighbourhoods and offer a steady demand for rentals, however, if the property is in a less desirable or stagnant area, there is less potential for growth, so the location should be a key consideration.

While new properties offer higher potential capital growth, used properties in established areas typically offer more stable and predictable capital growth due to historic precedence. Second-hand properties also offer the potential for value addition through renovations and improvements.

Rental yield potential

For some property investors, the primary goal is ensuring the long-term capital growth of the investment property, while others focus on the rental yield and cash flow generated from the property.

New properties in prime or emerging locations can attract desirable high-income tenants and provide excellent rental yields, especially if the area undergoes rapid development. Proximity to amenities, public transport, and employment hubs can significantly impact rental demand and yield.

Though new builds offer the potential for high rental yields, second-hand properties in well-established locations typically offer consistent rental yields.

The stability of these areas can result in lower vacancy rates and steady rental income. If the property is in a state of disrepair with no updates or maintenance, the rental yield will also be impacted despite potentially being in a desirable location.

The decision between investing in a new or second-hand property ultimately depends on the investment strategy, risk tolerance, and financial standing.

New properties offer modern amenities, higher rental income potential, and significant capital growth in developing areas, but come with higher market risks and purchase prices.

Second-hand properties provide stability, lower market risks, and consistent rental income in established areas, albeit with higher maintenance costs and potentially lower rental yields.

Claiming depreciation

Both old and new properties offer potential depreciation deductions that can maximise the tax benefits on an investment property and enhance cash flow.

New properties typically provide significant building depreciation deductions under both Division 40 for plant and equipment, and Division 43 for capital works.

Even second-hand properties retain potential depreciation value.

If the current owner undertakes significant renovations or upgrades, not only can these enhance the property’s capital value and rental yield potential, but they may also qualify for property depreciation.

Investors may also qualify to claim depreciation on renovations and upgrades completed by previous owners.

 

Article Q&A

Is it better to buy an established property or build new?

Weighing up whether to buy or build is a choice that comes with its own set of advantages and disadvantages, particularly in terms of financing options, ease of tenancy, location and capital growth, risk factors and tax benefits.

Investing successfully in property is relatively simple but with the cost of living at record highs due to rampant inflation and stagnant wages, taking a strategic approach has rarely been more important.

It requires discipline, which needs to be adhered to well before you even make any sort of offer on a property.

The average property investor holds the property for less than 10 years because they get this stuff wrong.

Developing good saving and budgetary habits before buying ensures investors don’t have to deal with the constant stress that comes with overcommitment.

With the cost of living at record highs due to rampant inflation and stagnant wages, now more than ever we must develop good financial habits.

It’s not just about saving a deposit; it’s about becoming a good saver, which helps develop the discipline to invest and provides a buffer if things go wrong. And even with the best property investment, things can go wrong.

There can be unexpected periods of vacancy and big expenses, such as replacing major appliances like dishwashers or ovens, or paying for emergency plumbing repairs as a result of an exploding toilet!

Once you’ve got that investment property, it’s good practice to have about three-months of expenses saved in a separate bank account that does not have an ATM card attached to it – that’s what we call an ‘In Case of Emergency’ fund.

It needs to be enough to cover mortgage repayments and the other fees and expenses of the property if it is not tenanted for three months. This includes rates, stratainsurance, property management fees and maintenance.

Property investment is considered a good debt – it is tax deductible and creates income or earnings. A bad debt is one that doesn’t earn money, but instead costs you money, for example, a university debt or car loan.

Work at paying bad debts down as quickly as you possible will make it easier to pull together a deposit and makes borrowers a more appealing prospect for banks.

In addition to saving a deposit, buyers should allocate an additional 3 to 5 per cent on top of the purchase price to cover buying costs, including stamp duty, loan application fees, conveyancing, legal fees, insurance and potentially lenders mortgage insurance. Assessing the details in regard to these expenses is crucial.

Positive cashflow

The aim of any property investment is for it to become cash flow positive, and what I mean by this is more money coming in than going out. Sounds simple enough, but according to the Australian Tax Office, half of property investors don’t buy cashflow positive properties.

In order to be cash flow positive, it is important the properties provide three things: decent rental yield, a high rate of occupancy and tax deductions.

The rental yield is the annual rental return as a percentage of the purchase price. Rental yields can be as low as 2 per cent, and as high as 6 per cent or 7 per cent or more. A rental yield of 4 per cent or higher is generally going to provide enough to cover mortgage repayments in time.

While it would be nice to have a tenant paying rent in the property all 365 days of the year, not all properties have that luxury.

To ensure a high occupancy rate, it’s important the rent is affordable. As a rule of thumb, try to ensure the rent is no higher than 30 per cent of the household income of the suburb in which you’re buying. This way there will always have someone wanting to rent the property, maximising its occupancy period.

When it comes to cash flow and tax, most people don’t realise the biggest tax deduction isn’t the mortgage interest, it’s the depreciation. In fact, 100 per cent of the house cost is tax deductible by way of depreciation. The total house cost is depreciated over 40 years, with the majority capable of being deducted in the first 10 years.

If cash flow positive is unattainable, I’d encourage investors to limit the cost of holding the investment to below 10 per cent of take-home (after tax) pay, and always build in a buffer for interest rate increases (of around 2 per cent).

Article Q&A

What rental yield should property investors aim for?

The rental yield is the annual rental return as a percentage of the purchase price. Rental yields can be as low as 2 per cent, and as high as 6 per cent or 7 per cent or more. A rental yield of 4 per cent or higher is generally going to provide enough to cover mortgage repayments in time.

How much rent should should landlords be aiming to charge?

To ensure a high occupancy rate, it’s important the rent is affordable. As a rule of thumb, try to ensure the rent is no higher than 30 per cent of the household income of the suburb in which you’re buying. This way there will always have someone wanting to rent the property, maximising its occupancy period.

Helen Avis has been nominated for Mortgage Broker of the Year.

Specialist Mortgage is proud to announce Helen Avis, Director of Finance, has been named as a finalist for Mortgage Broker of the Year in the prestigious 2024 Women in Finance Awards. This national awards program  honours the leading women shaping Australia’s finance industry and celebrates their outstanding achievements.

The Women in Finance Awards spotlight the remarkable contributions of women in financial services, an industry where women still represent a minority. Only a quarter of mortgage brokers and a fifth of financial planners are female. These awards aim to amplify the voices and efforts of women who are breaking barriers and making waves in the finance world.

The finalists, revealed on Tuesday, 24 September 2024, include 258 professionals and businesses across 29 categories, all recognised for their determination, resilience, and leadership in driving the industry forward. Winners will be announced at a black-tie gala at the Hyatt Regency in Sydney on Friday, 15 November 2024.

Helen Avis shared her excitement about being shortlisted for such a prestigious award:

“I’m truly humbled to be recognised as a finalist for Mortgage Broker of the Year. This nomination is a reflection of the dedication Specialist Mortgage has toward providing exceptional service and financial solutions to our clients. It’s a privilege to be a part of an industry that plays such a crucial role in helping Australians secure their financial futures.”

Helen’s commitment to her clients and her industry leadership have made her a standout figure in the mortgage brokering community. Over the years, she has consistently demonstrated excellence in her work, receiving numerous accolades. For Helen, recognition at the Women in Finance Awards serves as a powerful motivator to continue her efforts in creating meaningful, long-term financial solutions for her clients;

“The acknowledgment from these awards is not just a personal achievement; it’s a testament to the collective effort of the entire team at Specialist Mortgage. I continue to be driven by the impact we make in our clients’ lives, whether they are buying their first home, refinancing, or building their property portfolio. The satisfaction of helping clients achieve their financial goals is what keeps me working in this industry.”

The Women in Finance Awards celebrate not only individual excellence but also the importance of diversity and inclusion in the financial sector. As Australia’s financial landscape faces new challenges with rising interest rates and economic pressures, professionals like Helen play a vital role in helping clients navigate these complexities with confidence.

As the awards approach, Specialist Mortgage is proud to support Helen in this well-deserved recognition. We wish her the best of luck and look forward to celebrating her ongoing contributions to the finance industry at the gala event in November.

 

For more information or to speak with Helen Avis, please contact Specialist Mortgage today.

Specialist Mortgage is a leading mortgage brokering service based in Perth, offering a comprehensive range of tailored financial solutions to meet the diverse needs of clients living in Australia and abroad. With a commitment to excellence and customer care, Specialist Mortgage has built a reputation as a trusted partner for individuals and families looking to secure their financial futures.

The Excellence Awardees have been announced for the 2024 Australian Mortgage Awards, the biggest showcase of excellence in the region’s mortgage profession across 27 categories. This year our Director of Finance, Helen Avis has been shortlisted for Broker of the Year – Specialist Lending, while Specialist Mortgage as a whole is up for Brokerage of the Year – Diversification.

These nominations highlight the exceptional work we do in helping clients secure the best financial solutions, whether they’re Australian expatriates seeking to invest in property back home or local residents looking for refinancing or new home loan solutions

With over 220 excellence awardees from more than 170 companies it truly represents the profession’s cross-section best. All these hardworking awardees are to be congratulated on their outstanding achievements, innovation and leadership.

For Specialist Mortgage, these nominations are more than just accolades—they affirm the value of our commitment to providing personalised, innovative solutions for our clients. Whether it’s helping Australian expatriates navigate the complexities of buying property from abroad, sourcing competitive home loans, or offering tailored refinancing solutions, Helen Avis and our entire team are dedicated to helping you achieve your financial goals with confidence.

Being shortlisted in these categories underscores our expertise and dedication to diversification in financial solutions—a core principle that has guided our work since day one and stands as just one pillar under the SMATS Group of companies. It also speaks to our consistent ability to adapt and respond to the unique needs of each client, ensuring that no matter where you are or what your financial situation may be, you have access to the best possible mortgage solutions.

Presented by Mortgage Professionals Australia and Australian Broker, the prestigious Australian Mortgage Awards are back once again to honour the outstanding achievements of Australia’s top brokers, brokerages, lenders, aggregators, and BDMs.

These annual awards acknowledge industry professionals making significant contributions and demonstrating exception expertise. We are eagerly looking forward to the awards ceremony on Friday, 18 October 2024, at The Star Event Centre in Sydney. Hosted by comedian Merrick Watts, with entertainment from ARIA-nominated Ricki-Lee and DJ Mimi, it promises to be an exciting and memorable evening.

We want to extend our heartfelt thanks to our clients and partners for their continued trust and support. Without you, this recognition wouldn’t be possible. As we await the final results, we remain focused on what matters most—providing exceptional service and expertise to help our clients navigate the financial landscape successfully.

We wish our Director Helen Avis and the whole Specialist Mortgage team good luck in their respective categories.

Stay tuned for more updates and wish us luck as we aim to bring these awards home! For a full list of the 2024 Excellence Awardees, click here.

For an obligation free consult contact Helen Avis or Specialist Mortgage today.

Specialist Mortgage, a part of the SMATS Group, specialises in providing tailored mortgage solutions for Australian expats and foreign investors. The team of experts led by Helen Avis, have consistently provided tailored mortgage solutions to clients worldwide, helping them achieve their property ownership dreams.

With a focus on personalised service and in-depth industry knowledge, Specialist Mortgage has established itself as a leader in expatriate and non-resident Australian home loans.