The more financially savvy have traditionally discouraged buying a home with a low deposit due to various factors, but with a strengthening real estate market and historically cheap to borrow money, some experts now argue that less is more.
With her finger on the pulse of the Perth home-buying scene, Realmark North Coastal manager Jeanette Bates said conditions in the Western Australian capital were right for the purchase of property.
Marking the five-year drop in property values in Perth and relatively high rental yields as favorable, Ms Bates also said the extremely low rental vacancy rate served to whet the appetite of buyers.
“There is pent-up demand from tenants to rent out properties, so for an investor to enter the market now with a 5% down payment is a great benefit to their wealth creation, given the current rental yields and the Affordability of Perth Property. ,” she says.
“On top of that, interest rates are at an all time low and there is a commitment to keep rates low for a number of years to stimulate the economy, so the equation works to the advantage.” of the investor. “
Lowering the traditional 20% for a home deposit has its advantages, including avoiding mortgage lender insurance, having more options when it comes to lenders, and securing a lower interest rate.
Additionally, applying a lower deposit exposes buyers to higher risk if property prices fall, potentially leaving the owner in negative equity with higher monthly repayments and additional interest over time. of a loan at 95%.
However, with high rental yields and the expectation of further spikes in house prices, Ms Bates said research showed a 5% down payment was worth it.
While market conditions appear to be responding positively to low deposits, Ms Bates said it is important to consult with a broker to find the best financing options, as well as to find and buy properties in areas that are familiar. capital growth.
“Buying a home now with a 5% deposit with low interest rates and a growing real estate market is a great decision,” she said.
“With low interest rates, you may be able to make additional payments or refinance your loan on more favorable terms in the current mortgage market.
“Do your research and buy in areas that will give you a return not only in the short term as an investor, but also as a homeowner as the property rises in value. “
Ms Bates’ statements were echoed by Freedom Property Investors co-founder Scott Kuru, who said now is the time to enter the real estate market.
Speaking about research being undertaken by his real estate consulting firm, Mr Kuru said that a five percent deposit might actually be a smart move.
“If you wait too long to raise a larger deposit, you risk missing out on significant capital growth,” he said. “It’s often better to enter a rising market sooner if you can.
“According to research conducted by Freedom Property Investors, low interest rates, massive government stimulus packages and pro-real estate policies are expected to push house prices to new highs over the next 12 to 36 months.
“It’s better to be in the market than out of the market,” the saying goes, “and that might ring true in these times.