[3 min Wed finance series] It’s still not too late to unlock your equity
After years of good growth across Sydney & Melbourne we are starting to see things turning around. And now would be an even more crucial time to reach out to your brokers and see if you can still take out any equity from your home or investment property before they continue to lose value EVERYDAY!
Sydney & Melbourne Markets – down down down
According to the QBE Housing Outlook report 2018-2021, so far Sydney has dropped on average 7.6% annually and Melbourne 1.6% respectively. We understand that these two leading markets had a really good run across the last 5 years and as such, we are now seeing housing price pulling back, in particular the suburbs where prices were previously inflated.
The downward trend is expected to continue in 2019 unless external factors come into play such as easing of credit which, as stated by the new Treasury secretary that tighter credit would be a ‘key risk’ to the economy.
What does this mean for the VIC Regional Market
Based on past experience that once the capital city value starts to drop the regional areas may also follow. The “ripple effect” applies to both up and down cycles, and at this point Newcastle house prices fell slightly 2.2% in the September quarter so we are starting to see this happening in NSW regional cities. Traditionally Melbourne cycle follows closely behind Sydney, which means for VIC regional cities we are now close to the turning point and your properties in regional VIC would still likely to be valued at a fair price point (after the recent boom).
Available Equity and considering your plan ahead for next few years
Now based on the valuation, banks normally allow you to “top up” to 80% of the property value. As an example, if you hold an investment property currently valued at $500,000 and your loan is $300,000, then you’ll have $100,000 equity available in your IP. This is calculated by
- 80% of Property Value = $500,000 x 80% = $400,000
- Available Equity = $400,000 – $300,000 (existing loan) = $100,000
This means if we apply with bank, subject to their credit assessment criteria, they’ll then release $100,000 cash along with a new $100,000 loan. And if we setup an offset account that links up to the $100,000 loan as Interest Only, then you pay no interest until you start using the $100,000 cash for your home or IP renovation, purchasing shares or even more investment properties.
P.S. For those of you who likes to see things drawn out, I have created a video which goes through the Equity concept on a whiteboard – watch it here.
So if you are looking to take out some equity – whether it’s to be able to renovate your home or for future investment down the track – now would be the best time to look at cashing this out before your property potentially dips in value.
Contact us today to organise a finance review to see if there are any potential equity that we can help you take out in preparation for your plan in the upcoming future.