Category Archives: Buying

Buying, Cost of debt, Financing, Property prices

The cost of debt and impact on property prices

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As interest rates go down, property prices go up

The cost of debt… it sounds like a philosophical question or an attention-grabbing headline on the detrimental cost to society of Millennials living their lives on credit cards and buying too much avocado toast. What I simply mean is “what does it cost to borrow money”? You can borrow money for a variety of reasons however I am referring specifically in this article to borrowing to buy a property, aka getting a mortgage, and how cheap debt pushes property prices up.

If you speak to your bank, a mortgage broker or even type into google “mortgage rate” you’ll be inundated with offerings hovering around 1.8 to 2.2% (October 2021). These are annual percentage rates and simply put, if you had a mortgage rate of 2% you would be paying $20,000 per year on a $1million loan. But where does this magical 2% rate come from and is that high or low?

Mortgage rates were highest at 17% in January 1990

To answer the last question first, current mortgage rates are the lowest they’ve ever been. In January 1990 you could have been paying 17% for your mortgage and rates have never really been lower than 5 or 6% even during the Global Financial Crisis in 2008. So, why and how are mortgage rates so low right now? Which leads me back to the first question of how is the rate set?

All interest rates, whether earned on money deposited in a savings account or conversely paid on money borrowed to buy a house, are set off the Reserve Bank of Australia’s (RBA’s) cash rate plus a number of other factors (see previous post here). The RBA announces the new cash rate on the first Tuesday of every month (except January) and weighs a number of economic factors such as unemployment and inflation to determine the rate. The RBA can use the cash rate to influence borrowing or saving to help stabilise the economy.

Currently the RBA cash rate is 0.10%, the lowest it has ever been and almost zero.

If the RBA wants to encourage borrowing the cash rate will be lowered (you pay less interest) and if they want to encourage saving the cash rate will be increased (you earn more interest). Put another way, if the RBA wants people to borrow more they will make it cheaper and easier to do so. But why would the RBA want people to take on more debt?

During the global Covid pandemic with millions of people dying worldwide, billions being locked down for extended periods of time and countless businesses having to temporarily close and potentially going bust, the hit to the global economy has been huge. The Australian economy has been affected by Covid in many ways.

Total unemployment has soared from 5.1% to 7.4% in a five month period

The total unemployment rate has drastically increased from 5.1% just before Covid hit in Feb 2020 to 7.4% in July 2020.

Inflation has sky rocketed in 2021, a direct result of the global pandemic

Furthermore, inflation has gone from around 0% annual inflation in the year ending 2019 to almost 4% in 2020. An increase in inflation is generally a good thing but means the cost of living has increased and the rate at which it has increased during this time is significant. So, less people are employed and it costs more to live. Because of this and many other factors, the RBA is trying to stimulate the economy to spend. And the more we spend the more we borrow.

Therefore, currently you could say the cost of debt is cheap. It does not cost as much as it has done historically (or ever!) to borrow money, and because it is cheap, we can borrow more. For instance, in 2014 the average interest rate was 6%, which on a $1million loan would cost you $60,000 per year. Lending institutions calculate your loan size based on income, current spending habits and a number of other factors. If none of these factors have changed but the interest rate has dropped, because you used to be able to afford $60,000 p.a. on $1million but now it only costs $20,000, the bank is happy to lend you more because you can service a higher level of debt on a lower rate.

And this finally leads me to explain how being able to borrow more money means that buyers can pay more when buying property, which is driving property prices up. If you could only borrow $1million before and a house at auction goes past this point you would have been out. But now you can borrow $1.2million you still have more spending power to stay in the auction. It doesn’t really matter what the property is worth (up to a certain perceived value point), if there are two or more interested buyers with money to spend still interested in buying the property, the price will be set just higher than the lowest bidder’s limit.

The RBA and the government do not want to create a property bubble, nor push prices up any further but these unprecedented times cause for drastic action. Which takes me back to the Millennials at the start of this article and the economic conundrum of housing affordability for the younger generations. Should they stop eating avocado toast and save more, or should the government intervene with drastic changes to the property industry (via duties, taxes, incentives and disincentives)? Or will it be left up to the mums and dads to personally redistribute generational wealth?

Buying, House style, Renovating

Queenslander homes

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A Queenslander home from the 1880s

I have just moved back to Queensland, Australia (QLD) after 21 years. The last time I lived in QLD was for university and when I finished in 2000, I had secured an amazing graduate opportunity in Melbourne and couldn’t have left fast enough. I was an adult, I had a degree, a job and the world was my oyster!

Fast forward to today and I have lived in Melbourne, London and Sydney, met my wonderful husband and had three beautiful children. And whilst living in London for the second time, my husband and I decided it was time to finally go “home” and give our children the lifestyle we grew up with. Sunshine, a big backyard, a pool if we were lucky and most importantly, grandparents, cousins, aunts and uncles.

So here we are in Brisbane and I have fallen in love all over again with the Queenslander house. I’ve never lived in a Queenslander and never thought I would but walking past these magnificent beauties every day on my strolls around the neighbourhood has made me want to embrace fully our return home, including living in one of these glorious old houses.

The Queenslander style home started being built in the late nineteenth century, making some of these homes over 100 years old, and is considered the most iconic Australian architectural style. The traits of a Queenslander are:

  • Single level home, detached on a separate block of land
  • High set on stilts
  • Made of timber with a corrugated roof
  • Large verandah extending around the house but not usually enclosing it
  • Decorative features such as cast iron or timber balustrades and coloured glass windows

While this style of architecture at first seems based on an aesthetic desire (because it’s so pretty!) in actual fact every feature was born from environmental and climate requirements, in addition to available building resources and the lifestyles of the time. This type of architecture is called “vernacular architecture”, where traditional or indigenous architecture has evolved over time based on local needs.

Stilts

To explore these features further and the reasons they were developed, lets start with the single level home set high on stilts. Queensland is HOT. It is so hot I didn’t think I could ever live here again, especially with my freckled skin and red hair. Before electricity and air conditioning, the houses were designed on stilts and stand alone to attract every small gust of wind under and around to cool the house down. The stilts also lessened the risk of the timber home above being attacked by termites.

Queenslanders are made from timber, which was cheap at the time and usually readily available from trees onsite. Long planks of timber were overlapped in a clapboard or weatherboard style giving excellent insulation for the humid climate. The timber and corrugated iron sheeting for the roof do not retain heat so are perfect for those hot summers over 40 degrees. Many in the northern hemisphere may be shuddering at the thought of cold winters in these cool houses but temperatures, certainly in Brisbane, usually bottom out at a mild 9 degrees in the evening.

Clapboard timber and the verandah

The large verandah allows that idyllic inside / outside lifestyle whereby windows and doors can be left open to capture the breeze whilst being protected from sun and rain. The verandah usually wrapped around most of the house and gave views over the garden, offering another living zone to the home.

The verandah and façade of the house usually had charming details such as balustrades and fretwork. Interestingly whilst these Queenslander houses were initially designed out of necessity for the climate and access to local and cheap building materials I suspect over time as these houses were built by more affluent families the decorative features were inspired by Victorian terraces, preceding the Queenslander style by 30 years in Australia.

Queenslander v Victorian Terrace

However, the Queenslander has evolved in modern times. Many are “lifted” and a ground floor built underneath to maximise space. Partial enclosure of verandahs has occurred, starting with the aptly named “sleep-out”, which was probably a bit breezy, to now complete inclusion within the house structure. Blocks (plots or lots) have been subdivided to capitalise on increasing land values and neighbours can peer into each others homes as dwellings are built mere metres apart. And as some of these beautiful old homes are extended to maximise space, some renovations are more sympathetic than others.

The Queenslander is the most iconic Australian house style ever built. And whilst practical it is also beautiful. It captures perfectly the style of living in this hot climate where families live seamlessly inside and outside, eternally escaping the unforgiving sun and occasional tropical rains. I hope they continue to be preserved as the demands of increased housing prices and building costs influence our historical streetscape. And I dream of living in my very own one day, continuing the custodianship of these beautiful and functional architectural masterpieces.

Buying, Financing, Investing

Cash rate cut to 1.75% as at 4 May 2016

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Record-Low

Another record low cash rate! The RBA cash rate statistics page doesn’t even record the last time it was as low as 1.75%, only going as far back as January 1990. Debt has not been this cheap in Australia for decades.

The main reason the RBA gave for this historical low rate is due to “…inflationary pressures (that) are lower than expected.” This means the Australian economy is not growing as much as it is expected or at recent levels, and in order to stimulate the economy the RBA lowered the cash rate to promote households and businesses to take on more debt for investment to boost the economy.

The RBA choosing to cut the cash rate is a big decision and not taken lightly. The RBA would only cut the cash rate where they see the economy heading south for the foreseeable future and need strong measures to curb this downfall. So while debt may be cheaper, employment levels are declining and asset prices in general are falling.

Whether to buy property now is a trade off of factors:

  • debt is cheaper so you could borrow more,
  • however unemployment is increasing so job certainty is waning,
  • property prices are falling but where is the bottom of the market?, and
  • how long do you plan to hold the property to weather the slump back to higher prices and return on investment?

Speculation of a further 0.25% rate cut on 1 June would suggest a wait-and-see approach to buying property. And I hope you have a variable rate mortgage!

Buying, Investing

Buying: Apartment v House

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AptVHouse

When I bought my first property I looked at both apartments and houses. As a single girl at the time an apartment seemed like the obvious choice, and one I initially thought was a given, but I ended up buying a house. Many factors determine the type of property you buy; not just the size, location or price.

The “White Picket Fence” Syndrome

Apartments tend to be cheaper. A three bedroom garden flat can be afforded by a small family but a three bedroom house in the same street usually commands a higher premium. People love the dream of owning their own piece of land, and this creates a higher demand for houses. Apartments are also cheaper because on that same piece of land you can build multiple apartments instead of just one house.

Apartment 1 : House 0

But on the flip side…

Because houses have more perceived value than apartments their value also tends to increase more over the same period of time. Even if houses and apartments both increased 10% in five years, due to the generally higher price of houses, a $500k two bedroom house will increase in value by $50k, whereas a $420k two bedroom apartment will only make you a gain of $42k.

However there are all different types of apartments. An apartment in a high rise amongst many apartment high-rise buildings tends to increase less in value comparatively simply because the supply of apartments in that area is large. However if you buy a beautifully converted warehouse apartment in a small block in an area with a lot of houses, you should see values increase healthily. Look for apartments with good bones and uniqueness.

Apartment 1 : House 1

Size does matter

Generally speaking apartments tend to be smaller dwellings than houses. Its easy to find one bedroom apartments and five bedroom houses but the reverse doesn’t apply. However a small family can happily live in a ground floor apartment with a garden as equally as an older couple can continue to live in their large family home long since vacated by the kids. Depending on your space requirements will generally lean you towards one type of property over another. However it’s important to consider how long you intend to live in the property and whether the size will continue to support your lifestyle.

Apartment 1 : House 1

Do I own the land downunder?

Owning an apartment technically means you own a dwelling but not the land. Apartments are sold under Strata title, which allows individual ownership of part of a property (e.g. the apartment), combined with shared ownership in the remainder (called ‘Common Property’ e.g. foyers, driveways, gardens) through a legal entity called the owners corporation.

Houses are usually sold under Torrens title, which registers the owner’s claim on the land and therefore everything on it.

Apartment 1 : House 2

Hidden costs

Strata ownership for apartments requires the payment of fees and levies to collectively maintain, insure and improve the building and common property. Strata fees can be quite high depending on how many facilities the building has (e.g. lifts, pool, concierge). Levies and special levies can be shockingly high depending on what work needs to be done to the building and common areas. A leaking roof in an apartment building can result in a surprise levy bill for tens of thousands of dollars per apartment.

However owning a house is no free ride either. When the roof needs repairing on your house, guess who foots the whole bill? And ongoing maintenance such as replacing carpet or fixing an old fence occurs more often than you’d like to admit. In addition, houses have regular costs such as building insurance, water rates and land tax (on investment properties), that you don’t pay owning an apartment. You have more control over when some of these costs are incurred with a house but generally you can’t avoid them forever.

Apartment 1 : House 2

Meet the neighbours

With apartments, because you share title in the building with the other apartment owners, coming to a collective decision on how the building is managed or what the fee and levy money is spent on can be challenging to say the least. Horror stories of Owners Corporation meetings are many!

In addition, apartment living means sharing walls, floors and ceilings with your neighbours and because of this your neighbours can determine how you live your life to an extent. Strata Laws can prohibit pets, the apartment below can reject your request to install wooden floors due to added noise, restrictions on structural renovations can prove infuriating, and don’t even think of hanging washing on your balcony! This can prove extremely frustrating and in extreme cases unbearable.

However houses have neighbours too. Planning permission for renovations still needs to be advised to neighbours, who can object. Often your house will share a party wall or fence with a neighbour, which needs to be co-maintained. And certainly in the case of terrace houses, noisy neighbours are as close as any apartment. But owning a house you generally only need to appease your bordering neighbours, and certainly no-one can prohibit you from having pets!

Apartment 1 : House 3

High maintenance

When you own a house you have to organize all of the ongoing maintenance, or if you’re handy or thrifty, do it yourself (eek!). This can take a lot of time whether you do it yourself or outsource, and dealing with tradespeople is often fraught with trauma (see previous post). Whereas the owners corporation for an apartment building will manage maintenance for the building and common spaces, and apartments themselves tend to have little to no gardens and smaller floor space, requiring minimal maintenance.

We moved from a lovely apartment to a house a few years ago and I seriously took for granted how low maintenance the apartment was. No lawn to mow (even the 5m x 1m strip at the house takes time to mow!), no paving to top up with sand, no garden lighting that requires fixing because the rain has snuck into the electrics, no fence to repaint because the rust is starting to show… a good part of every weekend is spent doing “house stuff”.

Apartment 2 : House 3

Security

You cannot compare the security of a 6th floor apartment in a building with multiple key fob security doors and lift access to a house, even with a burglar alarm. Whether it is psychological or not, I felt safer and thought my stuff was safer up in that apartment rather than in my house. There’s something about the lack of access from the street, more people around and generally better security systems that mean apartments tend to be more secure.

In addition to being low maintenance, apartments are generally easier and safer to lock up and leave vacant for a while, such as for long holidays or a pied-a-terre.

There were reports of “spidermen” burglars scaling high-rise apartment blocks on the Gold Coast years ago but lets assume the risk of death generally outweighs the value of a plasma TV strapped to your back.

Apartment 3 : House 3

Scope for Improvement

The clincher for me comes down to the fact that I can add a bedroom to a house but not an apartment. Whether your motivation is capital gain or more space, houses have potential for extension or complete rebuild to something amazing and worth much more than the original property. You can only really do cosmetic renovations to an apartment and I’d be careful on overcapitalizing. The scope to significantly improve a house is worth a lot. Whether you do the extension or simply sell it on, that potential has value, something you can never achieve with an apartment.

Apartment 3 : House 4

So there we have it. Houses win, but only just. I think the true tipping point is the lifestyle factors, and of course, how much is in your budget! I ended up buying a house because I wanted to hold the property for at least 10 years for the capital gain and I knew in that timeframe I would (hopefully!) be having kids so needed more bedrooms and outdoor space. It turned out to be the right choice for me.

Buying, Selling

Have we reached the peak of the property market?

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housing-bubble2

Is it possible that property prices can continue to go up? How can anyone pay more than the lofty heights properties are currently selling for? Do we have a property bubble? And if so, will it ever burst??

Sydney has seen property prices soar in some suburbs by over 20% in the last 12 months. Melbourne is also achieving considerable price increases, with other Australian cities experiencing flat to down prices. The RBA cut the cash rate again last month to 2%, while acknowledging that Australia does not have a property bubble, just Sydney. So maybe I am in the eye of the storm.

I am seeing firsthand and hearing of these whirlwind auctions. Just recently I and a friend attended two separate auctions with the final selling price 10% higher than the passed in amount and absolute upper budget respectively. These auctions were across different price ranges ($1.6mio and $680k) and different types of properties (3bdrm house and 1bdrm apt) so this situation doesn’t seem isolated to a niche of the property market.

Coupled with the never ending articles on apartments selling for $1mio over their reserve, and an inner city terrace no wider than a Queen bed selling for just under $1mio, and the Sydney auction clearance rates at a high on 9 May 2015 of 89.2%, these two scenarios do not seem isolated.

The people benefiting from this situation are the sellers, clearly. Especially sellers who don’t have to buy or trade up in the same market: investors, downsizers, or families moving to QLD! If you can or need to sell a property in the current market, it seems like now is the right time. But without a crystal ball, how do we know prices won’t continue to increase. And can they?

Prominent and controversial ideas for curbing this bubble have been made to all corners of the industry: changes to property laws with regards to Capital Gains Tax (CGT), Self Managed Super Funds (SMSFs) and foreign investors; changes to lending practices for investment and interest only loans; and changes to selling practices with more policing of price guides and mandatory publishing of sale prices. But you could argue for and against all of these suggestions, and quantifying actually how much of an impact these would have is speculative.

Then there have been discussions on requiring fundamental shifts in how we perceive property: implementing a long term rental market with more support for tenants with longer leases, like in Switzerland; coupling this with changing the Australian dream of owning your home, and a house specifically; to moving perceptions towards other high returning assets as investments, such as shares. I think all of these ideas have merit, but would take significant time to implement.

What about the simple economics of supply and demand? Sydney, and particularly within a 10km radius of the CBD, is somewhere Australians and migrants will always want to live. That will never change. So is the solution to build more properties in this area? How can this be achieved with little to no new land available? And there is a lead time to building of at least 18 months (for an apartment block). So what then?

The quickest and simplest solution is to get more sellers to sell. The more properties on the more market the more supply, buyers then have more choice and there are fewer buyers competing for the same properties. So how do we get more sellers to sell? Keep spending big buyers… sellers won’t be able to resist selling at these astronomical prices!!

 

Buying, Financing, Investing

Cash rate cut by 0.25% to 2.25%

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Cash rate graph

Yesterday we saw the first meeting of the year for the RBA and a cash rate cut of 0.25% to 2.25%, the lowest in Governer Glenn Stevens (and many of our) lifetime.

Great news for people holding debt or wanting debt as money will now be cheaper to borrow.

Financial services providers will usually cut their variable mortgage rates as soon as today, with fixed mortgage rates dropping over the next month. See a previous post on how the cash rate drives mortgage rates.

The reason for this rate cut is to stimulate the Australian economy. A number of domestic indicators as well as the continuing state of the world economy has prompted the RBA to support the economy via a boost in Monetary Policy.

Which means things aren’t super great at the moment, but as long as you have your finances in order you can take advantage of this opportunity for cheaper debt.

However the typical trade off for a lower cash rate often is not good for property buyers. The ability to borrow money cheaper, and/or borrow more leads to increased buying demand and therefore competition in the market. And this is from both owner occupiers and even more so, investors.

The market is forecasting another 0.25% rate cut in the first half of this year (at this stage, speculation can change daily). Stay tuned for the next RBA meeting on the 3 March…

Buying

Yay the auction results have returned!

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Slide1

I am a devout reader of the Saturday auction results in the newspaper. If you don’t know what I’m talking about, get yourself hooked here. There are no auctions over the quiet Christmas and January period while lots of people are away. Understandable but it is torture to me who literally considers the auction results property porn!

I love trawling the results; passing opinion on whether I think properties sold for too much or were a bargain, pouring over floor plans looking for capital growth opportunities, or just ogling those sort of properties I can’t yet afford!

I scroll down the list looking at suburbs I am interested in, or even ones I haven’t heard of and wondering where they are. The results only list the type of property (h = house, t = terrace, u = unit, etc) and number of bedrooms… I do wish it included number of bathrooms and carspaces too.

Sometimes the price is published and sometimes it isn’t. If it isn’t, sometimes if you click on the link to the property it will display the price in the ad. Sometimes if you click on a similar property advertised and scroll down to the bottom of the page to similar sale results, it may be listed, although sometimes you have to wait a few weeks.

And then excitingly it tells you how the property sold; A = auction, S = Sold and then you get the exciting outcomes such as W = withdrawn (i.e. the vendors changed their mind, or there were no interested parties in buying), PI = Passed In (i.e. it didn’t sell at auction because the bidding was not high enough), and so on.

I find a few properties I am intrigued by and click into their ad for further details. I first look at the floor plan, deciding how liveable the property is and whether there is scope for improvement. If its a house I then consider the land size and the width of the house, as terraces in particular can be very narrow, under 4m is claustraphobic in my opinion! If its a unit I always check the facilities and strata fees to see if they are reasonable, which is a discussion in itself. And then I look at the pictures, but am always wary of those properties furnished with rental furniture. I know it helps some people visualise the space but I think it just looks like mutton dressed as lamb.

This week is a bit light on but I did find one property I was intrigued by… Leichhardt is a great inner west suburb, family friendly, close to the city with good public transport, with a lovely community and Italian influence. When I was looking to buy my house over five years ago, I always thought Leichhardt still had a lot of value. However I think that ship has sailed! This 2 bedroom, 2 bathroom 1 carspace workers cottage sold for $1.075 mio, which is Paddington prices (although you wouldn’t get the extra bathroom and carspace!). A closer look shows the block to be very narrow and long – sure you could extend but you’d end up with a lot of hallways and even narrower rooms. It has been renovated nicely and has great storage in the lower ground level, but who would buy this house? A couple not looking to have kids, downsizers…? It’s a hell of a lot of money for not much.

What other properties did you find interesting in this week’s auction results?

Buying, Financing, Renovating, Renting

Will this property be a home or an investment, now and in the future?

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interest-only_1

This is the fourth and final post in my introduction to personal property finance series. A very clever friend of mine commented on a previous post when discussing fixed v variable mortgages, that you can have a number of fixed mortgages. For instance, if you’d decided to fix $150k of your mortgage, you could get 3 x $50k fixed mortgages, which would allow you to repay more principal. Many financial providers restrict the amount of principal you can repay on a mortgage. So if the limit was $10k for mortgage, if you had three fixed mortgages, you could repay $30k of your total $150k fixed mortgage. Splitting your mortgages could also provide more flexibility if you wanted to fix some for one year, some for two years, and so on.

However… this is if you want to repay principal. Many people falsely assume you have to repay your mortgage and that repayments have to include principal and interest (P&I).

Now you’re probably thinking… but then I am not paying down my mortgage and I’m not “getting ahead”, or why would I want to pay the bank all of that interest?, or I thought those sort of mortgages were only for investors… Let me answer all of your concerns and show you that having an Interest Only loan is the best option for you.

First and foremost, your monthly repayments on a P&I mortgage will be higher than Interest Only. On a $100k mortgage where the interest rate if 4.69% and term is 25 years, your P&I repayment is $566.67 (P $175.84 & I $390.83). On the same mortgage, your interest only payment is $390.83. You save $175.84 a month!! When calculating how much you can repay (see previous post “What mortgage payments can I comfortably afford?”), an interest only loan may mean you could comfortably borrow more.

Secondly, if you have an offset account you don’t need to repay principal. See my previous post “What is my risk appetite regarding fixed versus variable mortgages?” for an explanation of offset accounts. If I have a $100k mortgage and $20k in savings in my offset account, this means I only pay interest on $80k. My monthly payments are even less $312.67, and my principal has been reduced by $20k. With a P&I mortgage, I am out of pocket $566.67 in the same month, and I have only repaid $175.84 of principal!! It would take almost 8 years to repay $20k via P&I repayments.

While you are not technically “repaying principal” or “paying off your mortgage” with an interest only mortgage with an offset account, you are reducing the principal amount of the loan, and therefore paying less in repayments.

So maybe you think… well that’s fine but I don’t have a spare $20k to stick in an offset account… even if you only have $1k in your offset and you deposit some small savings each month, you are a lot better off than trying to pay P&I. The more savings you deposit in your offset, the lower your mortgage payments are (incentive!) and you will pay less and less interest to the bank.

The big seller for me on an interest only mortgage with an offset account is the savings you deposit to reduce your principal is YOUR MONEY. You can do with it what you like, you can take it out when you want, and you can put more or less in each month. You can deposit $20k in your offset account and decide a few months later you want to renovate your bathroom. In the meantime you have reduced your monthly payments dramatically AND still have access to YOUR money. If you are repaying P&I, you cannot withdraw that $175.84 of principal. In time you can draw down equity on your home but that is a much more complicated process than transferring some funds from one account to another in your internet banking and hey presto! you’ve got $20k to spend on your renovations.

And finally, the question some people don’t ask themselves when buying a property is… “will I ever rent out this property” …what happens if work posts you interstate, a relative gets sick and you move to care for them, or even that you are lucky enough to buy another property to move into without having to sell the current one… your property could end up being an investment and rented out. If there is any chance this is a possibility, you should strongly consider an Interest Only mortgage as only the interest portion of your mortgage payments will be tax deductible. This leads us into a bigger discussion with regards to “gearing”, which I will cover in the next post.

So really, it’s a no brainer! Interest only mortgages are cheaper, may allow you to comfortably borrow more, with an offset account offer the ability to reduce principal significantly faster than repaying principal each month, and gives you access to that principal any time you want it, all while providing the flexibility for the future with regards to renting the property out as an investment. I promise you’ll be “getting ahead” a lot faster with an Interest Only mortgage.

 

Note 1: I found a few handy mortgage payment calculators: http://www.planabettermortgage.com.au/loan-calculators/p–i–interest-only.htm or http://www.infochoice.com.au/calculators/principal-and-interest-calculator/

 

 

Note 2: There has been vigorous discussion lately from various politicians that they want to get rid of Interest Only mortgages as they think they are contributing to Australia’s property “bubble”, however these mortgages are still widely available.

Buying, Renting

A Love Letter to Millers Point

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Millers Point 1

I have been walking around the Rocks and Millers Point for the last five years. I am in awe of the heritage landscape, capturing what I imagine Sydney truly looked like in it’s early colonial, convict days. Old police station buildings with intricate stone facade, original pubs in beautiful condition you can almost see the ghosts still lovingly cradling their pints in both hands, and rows and rows of the most phenomenal terrace houses unlike anywhere in Sydney.

OLYMPUS DIGITAL CAMERA

I think I am blessed to work in Sydney city and in my lunch hours take advantage of the beautiful sunshine to walk around these historical places, passing right under the Harbour Bridge, walking beside Sydney Harbour with full view of the Opera House and straight into these quiet pockets of history a mere 20 minutes from my office building. Millers Point especially is like a different world with its beautiful large houses and stone buildings. Almost no traffic passes through here, it is not on-the-way to anything, and very few people wander the streets.

I have often thought given the size of the houses and the quiet nature of the area, coupled with the amazing views across the Harbour and the proximity to the CBD, living in Millers Point would be wonderful, even to raise a family. I would stare longingly into the empty windows of the grand terraces, admiring the original floor boards, the sheer size of the rooms and the preservation of original features and wonder how much it would cost to buy one.

I was vaguely aware of some mid 80’s low rise apartment blocks and townhouses that were Government housing but I had no idea some of the beautiful terraces were Government housing too. I just though the area was living up to its ghost town vibe, with potential residents possibly put off by the Government housing neighbours. I hardly ever saw these tenants.

That is why I am so surprised to learn that the Millers Point Community, the vast majority of which are Government housing tenants, are in an uproar about the Government selling off these amazing houses. What “community”? I have never seen people walking their dogs in the street, kids playing in the park, or old codgers hanging outside the pub having a smoke and reminiscing about old times.

I understand the Government housing tenants are upset they have to move, and no doubt to a far less prestigious and sensationally located suburb than Millers Point, but it comes down to the simple economics of supply and demand.

The market value of these houses are in the millions of dollars as discovered from the recent sale of a few of the long uninhabited houses, which indicates the Government housing tenants could not afford to buy their homes. In addition, the value of these houses means the rent would be exorbitant and therefore also unaffordable. But not just to the Government housing tenants, but most normal people! Millers Point and its houses are hot property. Estimates predict the Government could make up to $500 million on the sale of these houses. Think of the social projects they could invest in with that sort of money. It is smart for the Government to sell off a small number of non-producing assets and release this capital for better use.

On one of my walks I saw a billboard with some stories of these tenants and reasons why they should not leave.

One tenant claims no-one wanted to live in Millers Point 30 years ago. To that I say, times change. Millers Point was inevitably going to attract interest, it is incredible it has taken this long. And a 30 year tenancy is unheard of! The Government housing tenants have been lucky to have lived in in the one house for so long.

Another tenant stated they were settled in Millers Point in 1981 when they immigrated to Australia. What luck they had! When my mum immigrated to Australia in 1949 she and her family were settled outside Parramatta in an immigrant area built with tin houses, otherwise known as “Silver City”. My grandma never moved far from there, working herself to the bone to eventually afford a small house in St Mary’s, from where she finally moved into a nursing home 50 years later.

What I would love to see is Millers Point re-energised. Those beautiful houses open and aired and lived in, children running up and down the halls, dogs barking in the yards. Restoration of the rundown heritage properties to their former glory. Life on the streets! People sipping piccolos in cafes, sitting in the parks admiring the priceless views, talking to and laughing with eachother, neighbours borrowing a cup of sugar. If that means the Government housing tenants are relocated and these beautiful heritage homes sold to the highest bidder, so be it. Because the Government housing tenants have done nothing for the community that I can see, and Millers Point is too beautiful and interesting to be left languishing. Bring on the gentrification!

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