Weekly wrap - Friday 4th June
First and foremost, we’d like to send much love and lots of support to all our friends, family, and compatriots living in Victoria at the moment. We’re hoping you get through this as fast as possible.
Interest rates might go up
The new financial year is just around the corner. We are three weeks away from another financial year. A shout-out to all the self-employed clients, trying to get those lost invoices in and get it all done. And a big shout-out to the Accountants about to go mad very soon.
It's been an interesting financial year. Talking about house prices, we saw around 8% growth this year. There’s been another 2% increase in May, and there’s talk we may reach 15% to 20% at the end of the calendar year, which is crazy.
What that has driven is interest rate movements. We've seen some of the banks start to shift, and the forecast has moved. We've seen those 3’s and 4’s start to go up. We've seen two year fixed rates come down. This isn't advice, but just general commentary. If you were thinking about fixing, and you were wanting to do something long-term, get in touch and let’s have a chat, because we don't know how much longer interest rates are going to stay as low as they are.
Busyness of the market and off-the-plan
We're seeing a shortage of stock and taking a lot of inquiries about off-the-plan, which is really interesting. What is off-the-plan? Firstly, we're talking about a property that's not yet built. In a lot of cases, especially at the moment, these are maybe 6, 12 months, even 2 years, down the track for unit style or townhouse style development. It might be some of the houses and land we're seeing at the moment, where land won't register for 8, 12 months down the track. Traditionally, off-the-plan is for unit townhouse style.
What are the benefits? The shortage of stock, first and foremost. It's very difficult to find stock at the moment. It's very difficult to find where you want to live, what you're looking for, and in your price bracket. That shortage of stock can be held up, and give you instant access to security. Not instantly, because it isn’t built yet, but you have confidence that it will, which allows you to move forward.
Another benefit is that you do not need to put down the full deposit. which gives you the ability to save some more.
One of the changes we've seen with the migration state-by-state, nationally now, is there are people coming into this market thinking, “during that one to two years, we still have got to sell our place. We've got to do a few things." It gives them time to do that in confidence, knowing they've got where they're going to be moving.
What are the criteria and requirements?
The first one concerns the developer where you purchase. When you buy an off-the-plan, you still need to present a deposit. It won't be the full deposit necessarily for the bank. But a general rule of thumb is you would give 10% to the developer or the agent selling the property. The contract will still have a finance clause. It might be 14 or 21 days. Obviously, in that time, you can get your pre-approval done. Then you need to go unconditional or commit to that property. The property may not complete for 6 months, 12 months, or 2-3 years down the track. That's your requirements when you're looking at purchasing.
The other side is of course the lender requirements. That is where it gets interesting. There's some variables here. From the lender's point of view, any pre-approval, or finance approval we get done through them, is generally valid for about three months, or 90 days. Sometimes we can get them extended a little bit more, but generally that's where it sits. So we'll need to reapply to the bank once your off-the-plan purchase is near to completion. As there’s no physical security, there isn't an ability to get a valuation done on the security as well, which would normally be part of the finance process, if you were buying an established property, or something that was already built.
Another variable is around the market, which is obviously something we can't control, as we know. Understanding if we're buying today, and that project may not complete for 6 months, 12 months, 2 years, whatever that looks like, the valuation is going to be done with its complete. Depending on what the market is doing at that time, that will dictate what the value of the property is, which could be an increase, or could be a decrease.
That will affect the amount of cash that you need to present. It may mean you need less cash, or may mean you need more cash. The banks lending criteria will more than likely have changed during that time as well. That may be positive. They may easily lean in certain areas, certain types of income, or clients that have requirements. It may go back the other way as well.
We love to talk to clients early on, ideally before committing to a project, so we can go through what that process looks like. We're always here, obviously our goal is to get you the very best outcome. An understanding of what we need to be doing between now and when we need to settle, to make sure we're in the very best position to be able to complete that purchase.
So please reach out, let’s have that chat!