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Can you refinance your way to a property investment?

By George Hadgelias

The goal of refinancing for most people is to get a better deal on your current home loan, right? But what if it could help you into property #2 or #3?

Savvy savers have been ‘shopping around’ on their home loan to reduce their expenses, save extra cash and help them begin a property investment journey for years, but now – when investors face some challenges in the market – it could be an especially prudent move to make.

So how does refinancing to invest work? Refinancing allows you to access the equity in your home to finance the purchase of another property.

Equity is the difference between what your property’s current market value is and what you still owe on your home loan. So if your home is worth $800,000 and you have a mortgage balance of $440,000 – provided your new home loan lets you borrow up to 80% of your home’s value – the useable equity will be $200,000.

The challenge for investors right now

“We have had such a huge investment boom in Australian property that earlier this year, it seemed hard to imagine that anything could stop it,” says Nerida Conisbee, REA Chief Economist.

“However, investors are now pulling back due to an accumulation of events that occurred throughout 2017. The biggest challenge has been accessing finance – it has become far more expensive for them to borrow, more difficult to get a loan and the places they can borrow money for, are far more restricted,” she says.

“There have also been additional taxes on offshore investors in many states, as well as cuts to benefits off-the-plan buyers enjoyed such as stamp duty concessions. Even negative gearing wasn’t left alone, and while the changes thus far have been fairly moderate, bigger changes could be on the cards if a new government comes into power.”

Ross Miller, General Manager of St.George Bank, says these recent regulatory changes have resulted in higher interest rates for investors than owner-occupiers, so those looking to invest need to be smarter than ever about choosing a home loan that meets their needs.

“There’s a number of reasons for Aussies to consider property investment, from its potential to build wealth, associated tax benefits and peace of mind for the future. But whether it’s your first home or not, purchasing property is a huge decision,” Ross says.

“It’s really important to consider all the factors and understand the risks by conducting thorough research and talking to an expert to ensure you’re choosing a provider and lending option that’s right for you.”

The silver lining for investors

Given the increase in house prices over the past few years, rental earnings may not be as profitable as what they’ve been for investors previously, however there is still some good news.

“Tight rental markets in places like Sydney, Melbourne, Canberra and Hobart suggest rents in these areas should continue to increase. Underlying demand for housing remains strong as population continues to grow,” says Ross.

“This is reassuring for investors, as it will provide incoming cash flows.”

Ross says it’s common to see home owners consider refinancing at this time of year, and he would advise anyone on the home loan hunt to look out for special deals or offers that may assist in the process.

For example, St.George currently has a $1,500 cash back offer to help alleviate some of the costs that come with refinancing.

Investing in 2018: Things to remember

If investing is the goal of your refinancing plans – Ross has a three key pieces of advice to remember throughout the year.

  1. Housing conditions are expected to cool further as regulation measures continue to kick in. So you should conduct thorough research and understand the risks involved, and remember that past performance isn’t always an indicator of future performance.
  2. Higher interest rates globally will also influence longer-term interest rates, so it’s possible fixed rates will also increase. Aussies currently looking to invest in Australia might therefore want to consider locking in a fixed rate on their home loan. Again, I’d encourage any buyers to speak to an expert so they can choose an option that’s right for them.
  3. Some areas within capital cities will continue to see a steady supply of new apartments, so investors should look out for rising vacancy rates. In saying that, rental markets have remained tight in key capital cities like Sydney and Melbourne, which tells us there’s still a strong demand for housing due to strong population growth. This should support prices and rents over the coming year/

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