What do Sydney’s rising house prices mean for homeowners, investors, and first-home buyers?

There’s some well-worn rhetoric that gets ample airtime on the nation’s media landscape – the Australian dream of homeownership is dead for the next generation, with young first-home buyers being priced out of the market in droves.

And with recent forecasts predicting Sydney property prices would surge 21 per cent in 2021, it’s easy to see why.

This means the median house price in Sydney is expected to jump another $220,000 — Ouch!

It’s hard to scrape together a deposit when house prices keep moving that much.

But while there is no denying that it is increasingly challenging for young first-home buyers to get their foot on the first rung of the property ladder, there is a flip side to this argument.

On the opposite side of the ledger are those who are already scrambling their way up the property ladder; owning either their own home or investment property (or both!).

For this group, rising house prices are good.

Rising prices bring opportunities.

Opportunity knocks for property owners

Despite lockdowns in Sydney and in wider New South Wales, prices have remained resilient.

At the time of writing, Sydney house prices have lifted 18.2 per cent over the past 12 months, withstanding multiple lockdowns.

This growth is extraordinary.

Regional New South Wales median house price has exceeded this, lifting 22.9 per cent over the past 12 months.

‘Surge’ is the best way to characterise this growth.

Property experts, such as Michael Yardney, are forecasting growth to continue until the end of the year, albeit at a much slower pace.

Sydney homeowners and Sydney investors are watching the property prices rise and they understand this means their assets are appreciating in value.

The asset is performing as it should build its wealth.

It’s a golden opportunity for homeowners to leverage that wealth and look at making it work even harder, turbo-charging their asset’s growth in value so they can build their personal prosperity.

Increased equity is, literally, money in the bank and can unlock a wealth of opportunities for the Sydney property owner.

How much can you access?

To calculate the amount of equity available in your property, take the current estimated market value of your home using recent sales in the area or a real estate valuation and subtract any debt against the property.

For example, if your home is worth an estimated $750,000 and you owe $300,000 then the equity you have is around $450,000.

But before you start doing cartwheels, you need to remember that you must factor in what loan amount you can service with repayments.

Your income, spending levels, and other debts need to be allowed for so it can be realistically calculated how much in additional borrowing you can afford to pay down.

And remember also, that the bank has its preferred margin for safety to which is lending a maximum of 80% against the value.

So in the example of $750,000 value, you take this at 80% = $600,000 less your loan of $300,000, leaving you actual useable equity of $300,000 and not the $450,000 as mentioned previously.

And remember, if you borrow more than 80 per cent of your home’s value, then you may be liable for the lender’s mortgage insurance.

Pro tip: A mortgage broker will come in very handy here, to help you understand exactly what you can afford to borrow, what costs are involved and how to avoid some common traps, and they can also help you find the right lender for your circumstances.

It may not be with your current lender either.

Looking to renovate, buy again or invest in shares?

For many Sydney homeowners who have been paying down their mortgage, the growth in value means they will now have increased equity in their homes.

The choices most Sydney property owners consider when accessing increased equity are to renovate their existing property, buy an investment property, or diversifying their portfolio toward another investment such as shares.

When making a choice about renovation vs new investment property vs shares, personalised advice from a qualified expert is essential.

A couple of quick tips to consider:

Don’t overcapitalise: If you’re thinking about renovating then make sure you have an understanding of who your target market is at sale time so you don’t price them out of the market.
Understand the demographic that buys in your area and cater to their needs.
Risk profile: If you’re considering buying shares, understand that shares go up and down in value and that they’re a long-game investment in most cases.
Speak to a qualified advisor before investing in shares so they can talk to you about your risk profile.
Buying high: If you’re contemplating buying an investment property, bear in mind that you’re buying at a time when prices are surging.
Plan for the inevitable price correction and make sure you are prepared for all outcomes.

A word for first home buyers

For first home buyers, don’t let the rising market scare you.

There is a raft of government incentives and assistance on hand to help you get started.

It has always been the most difficult thing, just to get started and get on the property cycle.

The deposit and saving for it represents the hardest thing but with these government incentives available (First home loan deposit scheme – FHLDS), the 1st home builder scheme, and the single parent scheme, you can get into the market for as little as 5% deposit, and for single parents 2%.

And then there is always the Bank of Mum & Dad that can also assist 1st home buyers.

The current low-interest-rate environment will help you not only get on the ladder but will also assist in paying down a sizeable chunk of your loan quickly.

Rates are forecast to remain low for the foreseeable future, which is a great chance to get started.

This means you’ll be building equity far sooner than those who wait on the sidelines.

As the property market delivers strong growth, it presents opportunities for all sorts of buyers.

Making your assets work hard for you is part of a good wealth accumulation strategy, but, as always, a qualified advisor is a key to making the most of these golden opportunities.

Don’t risk a misstep by failing to get good advice!

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