A property is the hottest pandemic purchase, so should you buy right now?
Unless you’ve been living under a rock, you’ll know that property prices are soaring at the moment. In March, national house prices rose 2.8% - the fastest rise in 32 years. Meanwhile, Melbourne’s median house price recently passed the $1 million mark for the first time.
It’s definitely a sellers market and buyers are up against cutthroat competition as they face intense demand for a limited amount of properties on the market. If you’re thinking of buying your next home, here are five questions to ask yourself first.
1. Can you actually afford to buy a new home right now?
With house prices booming, properties are being sold for well over the asking - in some cases up to hundreds of thousands over. Buyers are having to dramatically increase their budgets if they’re serious about buying, or else reconsider the type of home they can actually afford.
If you’re thinking about buying your next home, you should ask yourself if you can reasonably afford to right now. Have you built up enough equity in your current home? Are you prepared to increase your budget to afford the home you want?
2. Are you ready for potentially higher mortgage repayments?
With rising house prices comes bigger mortgages, and with interest rates likely to begin rising again in the near future, there are fears that buyers are taking on bigger mortgages than they can afford. While interest rates are at record lows right now, they will inevitably begin rising again.
Just because you can afford a mortgage at an interest rate of 2-3% will you still be able to afford repayments if interest rate were to double? Lenders will factor in your ability to repay the loan at a higher interest rate when calculating your ability to repay the loan, but you should still take the time to think about this from your end.
3. Will you buy or sell first?
If you’re buying and selling in the same market, you should think about what your plan is. The catch-22 of whether to buy or sell first isn’t a new dilemma but sellers have been caught out by the rapidly booming property market and are debating whether to sell first and take advantage of strong demand and rising prices, or buy first then sell out of fear they may not be able to buy back into the market.
4. Will this new home fit in with your long-term plans?
When the property market is hot, it’s common for buyers to get swept up in the fear of missing out (FOMO) and rush in. However, you need to consider if buying a new home fits in with your mid and long-term goals, which can be hard to do in the middle of a pandemic. For example, you may be working from home right now and decide that you need a dedicated home office space and a bigger home, but what happens if you eventually return to the office full time and realise you overpaid? Alternatively, what if your company decides to permanently adopt remote working and you realise you want to relocate further out of the city because you no longer need to commute?
If you aren’t sure whether buying a new home will fit in with your long-term plans it may be better to hold off on purchasing.
5. Have you considered all the risks of buying?
There’s never a guarantee that you’ll make money on the sale of your home but when you buy in a rising market, you’re at an increased risk of overpaying for a property which then falls in value when the market inevitably goes back down.
Ready to start looking for your next home? Get pre-approved by starting a home loan application today.