Leading consumer infomediary, Infochoice warns home-owners and property investors to adopt greater financial caution amid the increasingly uncertain climate of escalating house prices and record borrowing commitments.
Expected interest rate rises may well put an undue squeeze on many borrowers at a time when residential property prices appear to have reached unsustainable levels in some areas. Even if there is no rate rise announced this week by the Reserve Bank, increases are on the way soon.
Adding to the dangers are the lenient lending policies of some home lenders, which now becoming inappropriate.
There are, however, a number of simple steps that borrowers can take to avoid placing their biggest investment at risk:
Advice for existing borrowers:
* make extra repayments where possible to reduce your exposure to higher rates and falling prices
* consider switching at least part of your loan to a fixed rate BUT check the repayment flexibility of fixed arrangements.
* consider carefully further borrowing against the equity built up in your home – can you afford higher repayments if rates are 8% or more?
* Use home equity finance to consolidate existing higher-interest debt at the lower home loan rate, rather than for further spending.
Advice for new borrowers:
* allow for higher interest rates of up to 2%age points when budgeting for repayments over the next few years
* don’t rely on lenders to determine what is a manageable loan amount, borrow what’s right for your circumstances
* maximise your deposit and try to keep your LVR as low as possible, 90% at the most
* ensure personal debts like credit cards and car loans are under control before committing to a property loan
Advice for Investors:
* lock in tenants for as long a lease as possible, even if it means accepting a lower rent.
* avoid buying apartments in areas where large amounts of new construction is coming on line
