Going by the timeless cycle of property trends, it is not only likely, but almost predicable that after a number of years of good growth and high demand, there has to be a down turn.
Property Market Uncertainty
This may not sound so bad if you are sitting in a comfortable balance between your income, your borrowings and the applied interest rate price you are paying. But for the over stretched developer and investor that has borrowed the maximum, a jump in the interest rates could mean having to sell at a reduced price.
Of course even owning just one property can be just as detrimental if one had to go right to the very edge in order to purchase it. Once enough people are affected by the increase in repayments, the wheels start turning again… More people will have to sell, the cycle turns to a buyers market, prices drop accordingly and once this is taking hold – providing the interest rates are stabilizing again - the market becomes re-invigorated and new opportunity exists, especially for first home buyers and small investors to get into the market again.
Changes to the Property Cycle
Unlike the share market, the property cycle is repetitive rather than exponential. This means that every so many years (roughly 7 years) we can observe this change of demand dwindling, prices dropping, interest rates shifting, only to be swung into upward motion again simply by increased rents and the change of demand and the renewed attractiveness of the market.
To not fall victim to this dynamic, I would recommend purchasers to firstly keep a fall-back fund for any unexpected expenses. Secondly, do not over-commit. Greater, better, bigger or first up is not always the best option – especially if it puts you flat against the wall just to maintain it. Sometimes it is better to borrow a little less, but be comfortable with the repayments, even when they go up a little.
But most of all, you will be able to enjoy your home or investment property, rather than just stress about it.
Finding the Right Home Loan
Finally, I would urge borrowers to do their homework. There are so many lenders and alternative loan products on the market now like our Revolution Home Loan or our Prestige Home Loan product which gives you a 100 per cent offset account, while saving you interest on repayments.
Now days everyone should be able to obtain fair finance to suit their individual situation. Not just the first mortgage product offered by their bank in the main street, but various options and a good finance solutions that allow you to realise your property dream today and in the future without the need for it to crumble as soon as the slightest flicker in interest rates materialises.
More flexibility has been achieved in recent times than ever before with the introduction of different mortgage products such as low doc loans, construction loans and our fixed rate home loans that just about everyone should be able to get into a property - comfortably.