It’s a common dilemma for property buyers to choose between buying their first home and an investment property. Having your own home puts a roof over your head, but limits your potential for growing your wealth since most of it will go to your mortgage payments. Buying an investment property meanwhile helps increase your wealth, in exchange for delaying the purchase of your own property.
As with everything, each option has their respective sets of pros and cons. Before you decide on which is the best one for you, here are a few things to consider:
1. Buying an investment property doesn’t forfeit government benefits.
If you’d rather buy an investment property before your first home, the good news is that doing so won’t affect government benefits that you may be eligible for. The First Home Owner Grant (FHOG), for example, is only available for a property that you intend to live in. However, the FHOG is only available for those building new homes as the grant for established homes was scrapped this month. Remember to check what other grants are available and what stamp duty concessions you may be eligible for.
2. Record-low interest rates are still available to homeowners.
When it comes to affordability of loans, you may be better off buying your own home first. The reason is that there are plenty of attractive rates available to owner-occupier loans offered by various lenders today. The Reserve Bank is playing a big role on this one as they have left rates unchanged since reducing cash rates to a record low of 2 per cent in May 2015. This means that borrowing money to purchase your home will be much more affordable in the foreseeable future.
3. Rates are on the rise for investors.
While investors previously enjoyed the same attractive rates as homeowners, this is no longer the case since mid-2015. The reason behind this is that banks have begun to charge investors with higher rates than owner-occupiers in response to growing concerns that the market is overheated. Some lenders, for example, have raised investor interest rates by 0.27 percentage points. So, with rates for investors on the rise, you may have to think harder this time to see if it’s still a good option to purchase an investment property instead of buying your own home.
4. How much you can afford?
Regardless of whether you’re buying an investment property or your own home, one of the things that you have to consider are your finances, specifically the level of repayments that you can afford.
If you’re planning on buying a home, keep in mind that as attractive as the rates are, they may not stay that way forever. This means you will need to take into consideration whether you can still afford the mortgage repayments if say interest rates jump by 2%. Your Launch Finance mortgage broker will assist you in working this out and let you know how much you really can afford.
In the case of buying an investment property, granted that the rise in investor rates isn’t an issue to you, you also have to consider affordability to determine the type of property you can purchase with your budget. For example, while you may have your eyes on a house and land package, the reality might be that your budget can only afford to buy an apartment. Either way, always check your borrowing power first. It will save you from a lot of frustration in the future and enable you to make offers on properties faster.
Much of deciding whether to purchase an investment property or your first home boils down to affordability, especially since record-low rates for homeowners won’t be there forever, and investor rates are on the rise. Thus, it’s important that you use a mortgage broker to assist in providing you with great loan options based on your personal preferences and your circumstances.
Written by Duncan Pearce.