Should you enter the property market now, or later?
Most first-time property investors find themselves facing the challenge of coming up with sufficient funds for a deposit and so will be torn between two options:
Do they enter the market now and borrow a hefty portion of the property’s value? Or should they bide their time so they can put together a larger deposit?
Keep in mind that the choice you make now can impact greatly on the profitability of your investment, so it pays to consider the relevant factors carefully before entering the market. With property values relatively flat – at least for the moment – and lenders offering considerable discounts across many home loan products, it might be enticing to enter the market now, regardless of how much money you have saved. Many lenders now offer loans of up to 95 per cent of the value of the home, allowing you to enter the market with a deposit of just five per cent. However, it is important to assess your financial situation first. Ask yourself, can I afford to meet the repayments if interest rates increase, as well as put aside some money for emergencies?
Don’t forget that with a deposit of less than 20 per cent, it is highly likely you will be required to pay lender’s mortgage insurance (LMI) to protect the lender if you are unable to meet the repayments. While it will take longer to save a large deposit, there are some advantages in doing so – including being able to avoid paying LMI. Being able to put down a larger deposit will also help minimise your monthly mortgage repayments. However, while you save for that deposit you may be missing out on house price growth and investment returns, and the cost of your potential purchase will likely increase in the meantime.
There is no right or wrong decision here – it is up to you and it depends on your own, unique financial position. The best thing to do is to weigh up your options carefully. If you’d like help assessing your options, come and speak to us. We can assess those options – including calculating the numbers – and can help you get a better picture of what the best opportunities are for you.