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How do I know when it’s time to buy my next property?
Is It the Right Time to Buy Property in Australia?
If you’ve been wondering is it the right time to buy property, you’re not alone. With rising housing prices and historically low interest rates, many Australians are considering their next move. Recent CoreLogic data shows that between January 2020 and January 2021, national dwelling values rose by 3%. Darwin led the surge with an 11.4% increase.
Market Recovery and Expert Predictions
Melbourne was the only capital city that didn’t see growth during that period, likely due to strict COVID-19 lockdowns. Even Sydney, which faced similar restrictions, recorded a 2% rise in dwelling values.
As Australia continues to recover, experts anticipate further market growth. A gathered insights from economists, and most predicted that property prices would continue to climb.
Why Now Might Be the Right Time to Buy
With housing prices rebounding and interest rates remaining low, this could be a strategic moment to enter the market—especially for investors aiming to benefit from capital gains.
RATEBUSTER TIP
Before starting your property search, consider getting a valuation on your current home. This helps determine how much equity you can use toward your next purchase.
Also, create a list of non-negotiables for your new home—like extra storage or proximity to work—to better prepare for the costs ahead.
6 Signs It’s Time to Buy Your Next Property
1. You’ve Built Up Equity
If you’ve paid off your mortgage or made significant repayments, lenders may offer better rates. Applicants with a loan-to-value ratio (LVR) of 75% or less often qualify for lower interest rates. You can use your equity as a deposit for your next home.
2. You’re Considering a Sea or Tree Change
If your current home no longer suits your lifestyle, it may be time to move. Whether you’re retiring or need more space for a growing family, relocating to a more affordable area could be a smart move.
3. Your Financial Situation Has Changed
A rise in income, retirement, or family expansion can all justify buying a new home. If your needs have shifted, your property should reflect that.
4. You’re an Investor Nearing Retirement
If you’re building a portfolio for passive income, consider purchasing in a suburb with strong growth potential. This can help you reach your financial goals before retirement.
5. Interest Rates Are Low
Low rates make borrowing more affordable. If your budget allows, now could be a good time to take on a new or additional mortgage.
6. You’re Targeting Positive Gearing
If rental income from an investment property can cover your mortgage repayments, you may achieve neutral or positive gearing. This is a strong indicator that it’s time to buy.
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Should I use a bridging loan for my next property?
Using Property Sale Profits to Fund Your Next Purchase
Selling one property to fund the purchase of another can be tricky. Delays in receiving sale proceeds may disrupt your plans. In these cases, a bridging loan can offer a practical solution.
What Is a Bridging Loan?
A bridging loan is a short-term financing option. It helps you buy a new property before finalizing the sale of your current one. This type of loan covers the gap between buying and selling, easing timing issues.
The total borrowed amount—called peak debt—includes:
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The remaining mortgage on your current home
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The purchase price of the new property
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Upfront costs like stamp duty and legal fees
Once your existing property sells, you use the proceeds to reduce the peak debt. The remaining balance, known as end debt, becomes a standard mortgage.
Types of Bridging Loans
Open Bridging Loans
These loans suit borrowers who haven’t yet found a buyer. They usually last up to 12 months. To qualify, you must show the lender that you’re actively marketing your property and have substantial equity.
Closed Bridging Loans
Closed bridging loans work best if you’ve already secured a buyer but haven’t completed the paperwork. These loans often cost less because they carry lower risk.
Key Advantages of Bridging Loans
In Australia, most lenders offer 90–95% of a property’s value to standard borrowers. This may include support from a guarantor or schemes like the First Home Loan Deposit Scheme.
Bridging loans, however, can cover up to 100% of the new property’s value, including additional expenses. This makes them a powerful tool for buyers who need full financial coverage upfront.
Should You Consider a Bridging Loan?
Choosing a bridging loan depends on your financial situation. You might consider one if:
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You’ve found your next property but haven’t sold your current one
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You need immediate funds to secure a purchase
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You have enough equity to support the loan
If you prefer to avoid extra debt, waiting until your sale is complete may be the better option.
How do I choose my next property?
Choosing Your Next Property: What to Ask Yourself
Deciding on your next property is a personal choice. It depends on your financial situation and how you plan to use the property. To help guide your search, ask yourself these eight key questions.
1. Are You Taking On Too Much Debt?
Before committing, review your finances and confirm you can manage mortgage repayments. If you need a home loan, use a mortgage repayment calculator to estimate your monthly costs and avoid overextending.
2. How Long Has the Property Been on the Market?
If a property has been listed for more than six weeks, it might be overpriced or have underlying issues. Either scenario could affect your decision to make an offer.
3. What Have Neighbouring Properties Sold For?
Check recent sales in the area to understand local market value. Sites like offer suburb profiles with median prices and property types, helping you gauge whether the asking price is fair.
4. What Is Nearby?
Location matters. Consider how close the property is to public transport, the CBD, parks, beaches, schools, and childcare. These factors affect both lifestyle and long-term value.
5. What Are the Council Rates?
Beyond the purchase price, budget for ongoing costs like council rates, utilities, and strata levies. These expenses can add up and impact affordability.
6. Why Is the Owner Selling?
Understanding the seller’s motivation can give you leverage. If they’ve already bought another home, they may be eager to sell quickly—opening the door to negotiation.
7. Are There Structural Issues?
Hire a qualified building and pest inspector before making an offer. They’ll identify any defects, helping you avoid costly surprises and make an informed decision.
8. Should You Use a Buyer’s Agent?
A buyer’s agent can simplify your search. These licensed professionals represent your interests, find suitable properties, negotiate deals, and even access off-market listings. Their expertise can save you time and money.
RATEBUSTER TIP
Before you start house hunting, get a valuation on your current home. This helps you understand how much equity you can use for your next purchase. Then, make a list of non-negotiables—like extra storage or proximity to work—to stay focused and budget smart.
What are the benefits of purchasing an additional property?
If you are still contemplating whether to buy a new property or not, it may be beneficial to take into account some of the benefits that come with it.
Generate passive income.
Acquiring an investment property that can be rented out for a steady flow of passive income is one of the primary motivators for Australians to purchase additional property. Such a move can be advantageous in several ways, such as assisting in the repayment of an existing or new mortgage, or financing one’s current or future lifestyle, including during retirement.
Capital growth.
As with any income-generating asset, owning multiple properties can lead to greater potential for capital growth. To illustrate, if you purchase one property for $300,000 and its value rises by 15 percent, you earn $45,000. However, if you own two properties valued at $300,000 each, and their value increases by 15 percent, your earnings would be $90,000. Moreover, owning multiple properties that can be sold for a profit is a primary means of financing a comfortable retirement lifestyle.
Negative gearing and other tax deductibles
Negative gearing is a situation in which you borrow funds for investment purposes, and the investment returns are lower than the borrowing expenses. In the case of an investment property, this could arise if the rental income earned is less than the mortgage interest payments used to buy the property.
The advantage of negative gearing for a prospective homebuyer is that typically, the investment loss can be claimed as a tax deduction. Additionally, taxes related to investment property expenditures such as property maintenance, council rates, and other expenses may be eligible for reimbursement at the end of the fiscal year.
Climb the property ladder.
Regardless of whether you intend to buy a new home for personal use or as a rental property, it is important to bear in mind that you may not always acquire your ideal property on the first try. That is why the process is referred to as a property ladder – the goal is to ascend it. By purchasing more reasonably priced properties and selling them at a profit, you can potentially generate sufficient funds to purchase your dream property.
What are the costs of purchasing an additional property?
Whenever you make a significant financial purchase, there are inherent risks and potential pitfalls to watch out for. Similar to when you acquired your initial property, it is crucial to conduct thorough research before submitting an offer on any home, unit, or land.
Just as with your first property purchase, there are various upfront and ongoing expenses associated with buying an additional property. These expenses may comprise:
- Lender’s mortgage insurance (if your LVR exceeds 80%)
- Stamp duty
- Solicitor fees
- Conveyancing fees
- Council rates
- Building and pest inspections
- Moving expenses (if relocating to the new property)
- Home and contents insurance
- Property management costs (if purchasing for investment purposes)
What are the added costs if I own multiple properties at once?
If you plan on retaining your current property, be aware that some of the ongoing expenses may double up, such as council rates and insurance.
Additionally, if you intend to rent out a property, you must account for possible costs such as building repairs and other unforeseen issues.
It is also important to remember that not all property investments will yield high returns. According to Michael Yardney’s recent article, only 40% of the 2.2 million Australian property investors who filed a rental schedule were cash flow neutral or positive, while the remaining 60% experienced a net rental loss and negative gearing.
This highlights that owning additional properties’ costs can spiral out of control when the expected return is not achieved or budgeted for. Therefore, it is essential to prioritize quality over quantity when purchasing additional property. As Mr. Yardney argues in the same article, “the location of your property will do 80% of the heavy lifting.”
Therefore, it is crucial to choose growth areas or blue-chip suburbs when selecting your next property, as they are more likely to provide you with a return on investment. This may help minimize the potential costs of managing multiple properties.
How to get approved for your next home loan
To find the best new home loan rates, researching and comparing your options is crucial. Fortunately, Ratebuster can aid you in your quest through a range of valuable tools.
- Loan Comparison: Our straightforward comparison table enables you to compare our leading, low-rate loans side-by-side based on interest rates, total fees, and available features. This feature can assist you in selecting the most suitable next home loan for your financial requirements.
- Calculators: A mortgage repayment calculator can further aid you in your next home loan comparison by assessing how potential loan repayments might fit within your budget, narrowing down your home loan short-list.
- Brokers: If you require assistance or advice, our certified Finance Managers can provide guidance in your next home loan comparison journey.
What are the common traps of buying an additional property?
Making any major financial purchase is not without its own risks and traps to look out for. Just like when you purchased your first property, you’ll need to do your due diligence before you make an offer on any house, unit or land.
Here are some of the most common traps to be aware of when buying an additional property.
Interest-only loans
Many investors prefer interest-only loan repayments for investment mortgages, with the intention of selling the property for a profit before principal and interest repayments begin. However, there are risks involved with having one or multiple interest-only home loans, particularly if you’re unable to cover the full repayment costs. Interest-only repayments are significantly lower than principal and interest repayments, but when the interest-only period ends and property prices have decreased, borrowers may struggle to pay off the mortgage principal.
Moreover, opting for interest-only repayments means that you’re not reducing the principal of the loan. When the loan transitions to principal and interest repayments, the repayments may be considerably higher than if you started with principal and interest payments. This is because the loan term has been shortened, but the principal remains the same.
Before taking out an investment loan, make sure that you have enough savings and can manage the principal when the interest-only period ends.
Double the ongoing costs
If you decide to retain your current property while acquiring a new one, it is essential to keep in mind that you will incur twice the ongoing expenses. These expenses could consist of:
- Home insurance
- Municipal taxes
- Routine upkeep and repairs
- Real estate marketing (if it is an investment property)Given the absence of a guarantee on investment returns, it is critical to budget for all ongoing costs adequately. It may also be prudent to build an emergency fund to cover unforeseen expenses, such as replacing outdated or damaged equipment in your investment property.
Believing that bigger is always better
When searching for a new home, whether for personal use or investment purposes, it’s crucial to keep in mind that bigger does not always mean better. Many subsequent property buyers face financial strain when taking on excessive debt from a costly property and a hefty mortgage.
Instead, consider the benefits of aiming for more affordable properties with lower prices. If you are still paying off a significant portion of your first mortgage, or your income has not increased much since your initial purchase, it may be worth exploring “bridesmaid” suburbs. These suburbs are situated next to your ideal “bride” suburb and are expected to develop in the future. This way, you will need a smaller deposit, which is much more feasible for first-time investors as well.
Should I sell my first property before buying my next?
After deciding to buy a new property, you will be faced with the dilemma of whether to sell your first property before purchasing the next or wait until after. Both options have their pros and cons, so let’s examine them to assist you in determining the best approach for your financial requirements.
The pros and cons
- Selling a property before buying your next one
Selling a property before purchasing a second one has a major advantage – you have a clear understanding of the capital available for your next investment. The proceeds earned from the sale can be used as a deposit, lowering your expected LVR, and potentially enabling you to buy the next property outright, thus avoiding additional debt.
However, if you’re moving from one owner-occupied dwelling to another, you have a short settlement window to use the funds to purchase the new property. Nonetheless, negotiating a longer settlement period can give you enough time to find a suitable property. On the other hand, a delay in selling and buying can lead to an increase in property prices, causing unexpected expenditures.
- Not selling a property before buying your next one
Although it may seem riskier to hold onto a property and use its equity to buy another, not all Australian homeowners are interested in selling right away or at all. However, this strategy can have its advantages.
For instance, if you plan to use one property as an investment and live in the other, you could generate passive income from rental payments to cover the new mortgage or increase your overall income. Additionally, when the market conditions are favourable and auction clearance rates are high, you may not feel pressured to sell quickly, as your current property could sell fast anyway. Hence, selling the first property might not be necessary if you plan to use its equity to bolster the deposit for your next purchase.
However, retaining your existing property means juggling the expenses of two or more mortgages and duplicate ongoing costs. Managing multiple home loans involves handling differing repayment amounts and frequencies, as well as multiple interest rates and fees.
FAQ section
Is buying another property a good investment?
Generally speaking, diversifying your property portfolio is considered a sound investment strategy. However, like with any investment, there are risks associated with purchasing property. The returns you receive from an investment property are subject to various factors that are influenced by market conditions. As a result, there is no assurance that buying another property will result in consistently high returns.
Can I borrow against my property to buy another property?
If you have paid a significant amount of equity into a property or own a property outright, you can use it as collateral to secure a new home loan. If you are uncertain about whether you meet the requirements, you can consult with a home loan specialist from your preferred mortgage provider.
Is it easier to get a mortgage the second time?
Assuming your financial situation has improved, your credit score is excellent, you’ve made consistent mortgage repayments, and have not accumulated any new debts, it may be easier to obtain a mortgage the second time around. However, the lender will still evaluate your current financial condition to assess your ability to service the loan. If your financial situation has improved since your first mortgage application, you may have a better chance of being approved for a new loan.
Is it easier to buy a house if you already own one?
Buying a property can be a daunting task, regardless of whether you own a property or not. However, if you’re selling a property to buy another and have more funds available, you may find it easier to make an offer or compete at an auction.
Can I buy my next house and rent the first?
If you are financially secure and meet the eligibility requirements for an investment home loan, you can purchase a second property and rent out the first.
Is now the right time to sell my current house?
Before deciding to sell a property, several factors must be considered, including the size of the existing mortgage, the property value, and the prevailing market conditions. It’s always advisable to seek advice from professionals such as a property manager or real estate agent before making any decision.
Should I consider bridging finance?
Bridging finance can be a useful solution when you require funds to buy a new property while waiting for the sale of an old one. However, it’s essential to evaluate your personal financial situation and budget before making any financial decision.
Do we have to pay off our house before buying our next home?
It is not necessary to pay off your existing mortgage before buying another property. Australians can hold multiple mortgages simultaneously, but they must designate their primary residence for taxation purposes.
How do I know how much equity I have in my current home?
To calculate your home loan equity, you need to determine your property’s current market value and deduct the remaining loan balance from that number. For instance, if you have a property worth $500,000, and the outstanding mortgage is $150,000, then the equity in the property would be $350,000.
