Perth’s property market is on fire. In the last 12 months alone, home prices have jumped by over 23%, making it one of Australia’s best-performing cities. This has created a significant opportunity for homeowners: the chance to unlock new equity and use it to purchase an investment property.
Let’s explore why Perth’s housing market is thriving, how you can tap into your home’s new-found equity, and what risks you need to consider before taking the plunge. Many people consider investment properties as a great way to build wealth and secure financial security in future. The last data from the ATO in 2021 showed around 2.24 million taxpayers in Australia the own an investment property and that there were a total of 3.25 million properties classed as investment.
Why Is There So Much New Equity in Perth?
Perth has seen by far the largest increase in value over the last year. The increase has impacted both house and unit prices as shown in the chart below using data from CoreLogic’s Home Value Index reports.
- Post-Pandemic Property Boom: The pandemic drove a nationwide shift towards larger homes, more space, and affordable lifestyle suburbs. Perth, with its comparatively low house prices and appealing lifestyle, became a hotspot for both interstate and overseas migrants, pushing demand up sharply.
- Chronic Housing Shortage: Perth is facing a housing shortage, with the number of properties listed for sale about 40% below the five-year average. This tight supply has intensified competition, driving property prices higher and, consequently, boosting homeowner equity.
- Rental Market Surge: The rental market in Perth is booming, with vacancy rates near historic lows. This demand for rental properties has kept investors active and driven more homeowners to consider investment properties as a way to capitalise on strong rental returns and high capital growth.
- Population Growth: Perth’s population is growing rapidly, fuelled by migration and interstate movement. As more people relocate to WA for its lifestyle and affordability, demand for housing has outstripped supply, resulting in rising property values.
- Relative Affordability: Until recently Perth was one of the most affordable capitals. Perth’s median home price was significantly lower than east coast cities, making it an attractive market for both investors and homebuyers.
How Does Home Equity Work?
Equity is the difference between your home’s current market value and the balance left on your mortgage. As your home’s value increases, your equity grows, providing you with an asset you can leverage for investment.
For example, if your home is worth $750,000 and your remaining mortgage is $300,000, you have $450,000 in equity. Most lenders allow you to access up to 80% of your home’s value, minus what you owe, meaning in this case you could access up to $300,000 to release towards investing in a second property.
How Can You Use Your Equity to Invest in Property?
Once you know how much equity you have, it’s time to put it to work. Here’s how to get started:
- Assess Your Equity: Speak to Fox Mortgages to get a clear understanding of how much equity you have and how much you can access. We’ll calculate this based on your home’s current value and your mortgage balance.
- Get pre-assessed: Run the numbers, we can look at using your equity, assessing your current position and seeing what the additional of rental income has on your borrowing capacity. Those figures will then assist in calculating your purchase limits.
- Research Investment Locations: While Perth as a whole is growing, some suburbs are outperforming others. It pays to do your homework, seeking advice from local real estate agents and buyers agents may give you some more insights.
- Manage Your Investment: Use the rental income from your new property to help cover mortgage payments. At Fox Mortgages, we’ll help you find competitive loan options that match your investment strategy, so you’re not overstretched financially.
The Key Benefits of Leveraging Equity for Investment
By using your equity, you can take advantage of several key benefits:
- Low Initial Costs: Instead of saving up for years for a new deposit, you can access the equity you’ve already built up to fast-track your investment.
- Rising Rental Yields: Perth’s tight rental market means strong demand for rental properties, potentially providing you with steady rental income to help cover your mortgage.
- Capital Growth: As Perth’s property market continues to rise, you’ll not only gain from rental income but also from capital appreciation, increasing your overall wealth.
What Are the Risks?
While investing in property can be highly rewarding, it’s important to be aware of the risks involved:
- Interest Rate Fluctuations: While many banks have recently cut fixed rates, interest rates can fluctuate. If you’re on a variable rate, any increase could affect your mortgage repayments, so it’s essential to plan for potential rate hikes.
- Vacancy Risks: Perth’s rental market is hot right now, but that could change. If your property remains vacant for a period, you’ll need to cover the mortgage without rental income. Ensure you have a financial buffer to cover any unforeseen vacancies.
- Market Volatility: Property values tend to rise over time, but market corrections can happen. Ensure that your investment is for the long term to ride out any short-term dips in property values.
- Over-leveraging: Borrowing too much against your home’s equity can put your finances at risk, especially if interest rates rise or the property market slows. Make sure you leave a financial cushion and don’t max out your borrowing capacity.
Whilst investing in property can be a good thing, it’s really important that you seek the right advice to ensure that it suits your investment strategy. It’s a good idea to seek advice from your accountant or financial planner.
Why Choose Fox Mortgages for Your Investment Journey?
At Fox Mortgages, we understand lending. Our local experts can guide you through the process of unlocking your equity and securing a loan. We’ll help you navigate the risks, capitalise on the opportunities, and set you up for financial success.
Get in touch or book your appointment online.