Owning your own home is still the great Australian dream. However, with house prices skyrocketing in most capital cities, it’s no wonder many young families and first-home buyers increasingly feel like that dream is out of reach in 2022.
Recently, the RBA announced that interest rates will be officially rising by 0.25%, making the cash rate 0.35%. This is the first increase since interest rates were slashed to an all-time low of 0.1% due to the pandemic.
For many potential first-home buyers that were already finding it challenging to get their foot on the property ladder, rising interest rates signal yet another hurdle stopping them from achieving their dream of owning their very own home. Furthermore, many potential buyers might be put off for fear of ending up under mortgage stress (when over 30% of your pre-tax monthly income goes towards your mortgage repayments).
If this is your situation, you shouldn’t necessarily be losing sleep over rising interest rates. In fact, in my opinion, rising interest rates will provide an excellent opportunity for first home buyers and investors to not only get into the market, but also to get better value for their money. The increase in interest rates will lead to a decline in property prices, and we’re already starting to see the market cool-off. Potential buyers will be more likely to find their first home for a bargain price, making the mortgage repayments more affordable, even if you’re paying a higher interest rate.
As an experienced Buyer’s Agent, one of my favourite types of clients to help are first-home buyers. If you’re a potential first-home buyer hoping to secure a great deal while the market slows down, here’s how you can put yourself in the best position possible to take advantage of declining property prices.
Do Market Research
Clients seeking to buy their first home often to come to me completely frustrated by the property hunt. They might have a budget of $1 million, and they found a house they love with a listing price of $1 million, but then it ends up selling at auction for $1.2 million. The key is that properties are quoted at the bottom of their price range, but often will sell for more at auction.
To get a sense of the real market value of a property, research other comparable sales in the area. Make sure you’re looking at recent sales only, as a sale from even a month or two ago may no longer be relevant depending upon how quickly the market is moving.
Be Ready to Move Quickly
I advise that all my clients get pre-approval on their loans, so that we’re ready to move quickly if we find a good deal. Due to rising interest rates, there are likely to be more sellers looking to quickly offload a property. If you’re able to move quickly and offer better terms, such as a shorter cooling-off period, unconditionality or a deposit release, your offer may be more attractive to the seller, even if it’s not necessarily the highest offer on the table.
Consider Investing in High Cash-Flow Properties Instead
Another option I always present to my clients, especially if they’re not quite financially ready to buy their dream home yet, is to consider investing in high cash-flow regional properties. These properties will provide investors with the opportunity to increase their income and build their wealth until they’re ready to buy a home of their own.
To future-proof your property portfolio against rising interest rates, make sure your investment properties are positively geared, or better yet cash-flow positive, to provide a buffer if interest rates continue to climb.
Buying your first home can take a lot of searching and persevering, but it is possible, even in 2022. The buyers who are prepared and ready to take advantage of the opportunities in a market dip will reap the rewards in the coming months and be able to secure a property that’s great value for their money.
Lloyd Edge, Director and Founder of Aus Property Professionals, is a buyer’s agent, property strategist, and author of best-selling book Positively Geared. His new book, Buy Now, is the ultimate guide to owning and investing in property.
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