Woman investor

Buying property because of low rates?

Record low rates spur debate about whether now is the time to be investing in the property market.

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There’s a mother’s saying among women, and that’s “When the going get’s tough, the tough go shopping.”

This is certainly what the banks are hoping Australians do after interest rates were cut to fresh lows this week, particularly on big ticket items like property.

But whether or not that’s a good thing for the property market is debateable.

All of the major banks moved to lower their home loan rates on Tuesday night after the Reserve Bank of Australia cut the cash rate to 1.75 per cent from 2 per cent earlier that day.

As a result, homeowners with a $250,000 mortgage, which is about $100,000 short of the average loan, will save nearly $40 a month on a variable rate home loan.

The first to move was National Australia Bank, which had predicted the rate cut. The bank’s boss Andrew Thorburn reckons the rate cut will help the economy by boosting consumer spending and confidence, but won’t coax more people to take out added debt to buy property.

The last time the RBA cut rates one year ago we saw rapid house price growth in Sydney and Melbourne.

Over the same period, the number of home loans taken out has grown, but not as fast as we’ve seen in the past.

While prices have come off the boil a little, and the housing market may be cooling, it still remains strong and many people living in popular pockets continue to see it as expensive or just unaffordable.

Whether or not now is the time to invest, depends on five things according to Emma Allen of Active Property Investing.

  1. Investing within your means – Understanding your financial perimeters and ultimately your capacity to invest is absolutely critical. This is one of the key factors you need to make an informed investment decision yet many people are unsure of how to do this.
  2. Leading indicators of growth – To identify locations with growth potential, then we need to look at leading indicators that point towards public and private investments, new infrastructure or changes and catalysts that will make the location even more attractive for people to live.

If you’re looking at an area which lacks growth potential, reconsider you location.

  1. Long-term view – Investors are always dealing with external factors such as interest rates, changes in lending restrictions, availability of finance or media sensationalising the market but despite these environmental factors property has proven to be a consistent performer in wealth creation.

But this may not always be the case, so you need to be comfortable with your long term view.

  1. Protect your assets, protect yourself – This refers to everything from the property’s insurance, landlords insurance and your personal insurances.

Protect your assets so if anything goes wrong, you have a financial back-up.

  1. Surround yourself with property savvy professionals – this can be conflicting or it could be the X Factor in being able to navigate through the changes and potential turbulence of a market.

You need people who can help you identify the best investing structure, how to optimise your return on investment and how to work with potential changes so you become a resilient property investor.

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