Use it or lose it: Why now's the time to capitalise on your equity

With house and apartment price growth softening throughout Australia – and sliding backwards in both Sydney and Melbourne – many experts are saying this is a good time to buy an investment property.

And there’s another reason: wanting to leverage equity in the rest of a property portfolio. “For that segment of the market who have substantial equity in their existing property portfolio, now is the time to either use – or lose – their equity,” says Unikorn buyers agent, professional investor and educator Helen Tarrant.

“This is the most sensitive property market we’ve been in for a long time, with the fastest decline in house prices in Sydney, for instance, in almost 40 years. So, owners are best to use their equity now to refinance and support their debt, before it’s too late and they lose the equity they have accrued over time.

“Banks are changing how they service debt, and interest rates are going up, so this is the perfect time to think about the best way to support your property portfolio and think long term about your wealth creation strategy.”

Certainly, the Reserve Bank of Australia (RBA) is saying that interest rates have a way to go before they’ll stop being hiked upwards in a bid to curb the 6.1 per cent inflation rate, and recent rises have already slashed the size of mortgages buyers can take on by an estimated 20 per cent.

For investors, the RBA’s head of domestic markets Dr Jonathan Kearns says that could make it even harder. “Because the assessment rate also applies to any existing debt, the decrease in borrowing capacity is even larger for prospective borrowers who have existing debt.”

Interest rates have risen steadily over the past six months while price growth has declined. The median price for houses and apartments together fell in the combined capitals over the last quarter by 0.7 per cent, according to the latest Domain House Price Report.

The biggest price drop was for houses in Sydney – 2.7 per cent over the quarter – and in Melbourne, 0.9 per cent. Perth had the biggest fall in the median price for apartments of 1.1 per cent, with Sydney close behind at 0.6 per cent.

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Propertybuyer chief executive Rich Harvey agrees investors should act now to maximise their equity opportunities. “If you want to access equity, do it now,” he urges. “You don’t want to wait until we’ve had more interest rate rises. Every 1 per cent they go up, borrowing capacity is reduced by 10 per cent.

“If you want to leverage and maximise your borrowing capacity, therefore, do it as soon as possible. There are already indications that price declines are slowing, while auction clearance rates are holding up, rents are on track to rise 20 per cent this year, and we’re about to receive a huge number of migrants who’ll all want somewhere to live. Act now!”

AMP Capital chief economist Dr Shane Oliver does sound a note of caution, however, to bear in mind future price falls. “But there is a case to say buy now because you can borrow more and, if you buy wisely, you aren’t going to see the value of your property decline,” he says.