Facts, house prices sky high, mortgages and government levies

The ‘it’ topic of the moment is house prices. Every­one is dis­cuss­ing the cur­rent trends in prop­erty prices, selling or buy­ing, mort­gages and everything to do with this topic. Every­one has an opin­ion but here are some of the facts relat­ing to the cur­rent state of the hous­ing mar­ket. These are also good point­ers for people want­ing to obtain inform­a­tion in order to invest or buy.

Hous­ing prices sky high and sup­ply and demand quotas

Why is the hous­ing mar­ket exper­i­en­cing such a boom of late with house prices so high? Its not just because of the Reserve Bank’s decision to lower or hold the interest rates. Its also a mat­ter of sup­ply and demand and the rising population.

The Block sky highPop­u­la­tion growth is now at the high end of the range of the past 40 years due to an increase in the rate of birth and net migra­tion flow espe­cially with skilled migrants who arrive typ­ic­ally cashed up adding to the hous­ing demand.

Even though there has been an increased rate of new home con­struc­tion, its not enough to cover the demand for houses. As such the ‘demand’ is run­ning ahead of the ‘sup­ply’ lead­ing to an increase in house prices.

Its also inter­est­ing to note that although house prices are rising every­where in Aus­tralia, growth rates vary sig­ni­fic­antly from city to city. Sydney is at the top with 15.6% rise in house prices since 2006.

What effect is the rising prices of houses having?

It is now start­ing to dent hous­ing afford­ab­il­ity. Rising prices are also redu­cing rental yields as some renters have become owner-occupiers themselves.Vacancy rates are rising and rental growth is slow­ing. Lower rates of return will thus repress interest from poten­tial investors.

Dream home versus mod­est home

Another inter­est­ing trend of late is first home buy­ers choos­ing to invest in more expens­ive houses (with asso­ci­ated lar­ger mort­gages) rather than some­thing more mod­est. The low interest rates have misled new investors to believe that they can eas­ily afford the monthly repayments.

How­ever its actu­ally smarter to start your foray into prop­erty invest­ments with a mod­est prop­erty and thus a smal­ler loan. You should then work hard to put as much of a dent in your home loan
bal­ance as quickly as pos­sible. This is because in the early stages of a loan, the most part of your repay­ments are being eaten away by interest whereas extra repay­ments go straight off the principal.

If you had taken out a smal­ler loan and paid extra you will pay off your loan sooner than try­ing to pay off a large loan where you can afford to pay only the min­imum repay­ment, not to men­tion the sav­ings of thou­sands in interest bills. You can then upgrade to your ‘dream home’ by using your ini­tial invest­ment as a step­ping stone.The block  Dream home versus modest home

Also note­worthy, the present is the time to pay down your loan more aggress­ively. Interest rates are low so they absorb less of your repay­ments. This decreased interest expense means more of your repay­ment is going towards redu­cing your debt.

How is the increase house value affect­ing the rate of gov­ern­ment levies?

The state gov­ern­ment is exper­i­en­cing a hefty rev­enue raise from the stamp duties levied on any prop­erty sales.

Under the tax sys­tem, a higher duty is charged on more expens­ive homes than aver­age homes which is as it should be. How­ever, gov­ern­ments seem to have missed on the fact that they need to reg­u­larly adjust the threshold lim­its as our home val­ues increase. As a res­ult of this, we are now pay­ing “lux­ury” stamp duty amounts on aver­age homes.

Even though the rev­enue from taxes are essen­tial in order to provide a range of import­ant gov­ern­ment ser­vices, this tax is now becom­ing unfair. The amounts of duty being charged is con­sid­er­able enough that it can actu­ally keep people from own­ing their own homes.

Its also inter­est­ing to note that owner occu­pied stamp duty in Queens­land is less than half that of the other states. This is a smart move because with this incent­ive, Queens­land bene­fits from a migrat­ing pop­u­la­tion that has been edu­cated and sup­por­ted by the other states. NSW is there­fore los­ing these aspir­a­tional, hard work­ing cit­izens to other states.

About 

With expert­ise span­ning mort­gage lend­ing, prop­erty law, prop­erty invest­ment and bor­row­ing to invest within Self Man­aged Super­an­nu­ation, Aaron Sains­bury offers more than 25 years pro­fes­sional advis­ory expertise.

He is an enthu­si­astic sup­porter of fin­an­cial lit­er­acy, work­ing closely with cli­ents to help them gain and main­tain con­trol of their fin­an­cial future.

Aaron is thor­oughly com­mit­ted to build­ing lifelong rela­tion­ships with cli­ents based on the highest qual­ity ser­vice, advice and trust.

Con­tact Aaron dir­ect on 02 9818 8643 .

Smart­line Per­sonal Mort­gage Advisers
G5/1–15 Barr Street , Bal­main NSW 2041
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Smart­line Oper­a­tions Pty Ltd Cor­por­ate Author­ised Rep­res­ent­at­ive No 376868
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Cnr Federal Road Prospect Highway Seven Hills NSW 2147 Australia