Disclaimer: These views and comments are not to be taken as financial advice. Please talk to a qualified financial advisor for advice on your particular situation.
There is so much talk about it at the moment. What is happening to and going to happen with the (Sydney/Melbourne/Australian) property market….
Here are some recent news articles about it:
- Many commentators are saying we are in a property bubble.
- ANZ expects house price growth to ‘slow sharply’
- Prices compared to income are at an all time high.
- Affordability for many first home buyers has disappeared.
- Household debt levels are at multiples that are in danger territory.
- A funds manager even sold all their positions and handed back clients funds as they believe a strong correction is imminent.
- But then John McGrath came out last week dismissing a property bubble….
What do I do with all that information? Am I in danger of losing my house? Are property prices going to crash? Or are they just going to come down a bit? (What is a bit?) Is a 5% drop a disaster or a storm in a glass of water? (like Y2K…). Will rates go up and by how much and when? How will that affect me?
Here is what I think. It is best to be prepared and not fearful. Yes, debt levels are high. Yes, house prices have increased a lot in the last 2 years. Yes, affordability is a challenge. So I am putting the following in place for me:
- Even though house prices have gone up and I have a lot more equity, I am just going to let that sit there for now. No upgrading to a newer/bigger home. And If the house prices drop, there is enough equity and I’ll be ok.
- This is not a time I would want to be mortgaged at 95% (or even 90% perhaps) without safeguards in place. Have cash set aside in an offset or savings account. Funds I can draw on in case rates go up or the bank decides my loan to value ratio needs to be reduced. If the tenant leaves I can pay the mortgage whilst finding a new tenant.
- This is not a time I would want to have all my mortgage on variable as that leaves me exposed to rising rates and lenders changing policies. I am fixing at least 50% of my debt for 2 or more years. That also protects me from lenders making policy and rate changes.
And then I know I should be ok. We don’t know what changes will come but I have prepared myself.