There is plenty of news saying things like “property prices have dropped 10%” and “watch out for the market crash”, but do we really think the entire market is going to crash?
Why? Well, to start with, every market is unique. Believe it or not, there are actually markets within markets, i.e. units versus townhouses, luxury homes versus standard homes, they’re all not comparable to one another. So before reading any news piece relating to property, keep in mind, the numbers they refer too are the entire state or country, not your suburb on its own.
What if we told you the same applies to lender valuations? Yep, the valuation one bank can provide can be tens of thousands of dollars different, sometimes even hundreds of thousands of dollars different to another bank. Why? Because it will come down to what type of valuation gets carried out. There are three main types, walk through (human), desktop (human or computer AI), and automated (computer AI). All lenders have access to all three, and what determines which type is ordered is mostly out of your hands.
Let me give you some examples, all of these are just from this week…
Property 1 – 3-bedroom house QLD
Lender 1 – $325,000
Lender 2 – $295,000
Between the 2 lenders, that’s a $30,000 difference! On a home of $325,000, that’s a 12% variance in price. This is the difference between refinancing and releasing equity, and not being able to do anything. For this client, it was a chance for them to refinance to a better deal without having to pay mortgage insurance (LMI), or in the case of the lower valuation, having stay where they were with no options.
Another example, this property was in Melbourne – 2-bedroom unit VIC
Lender 1 – $715,000
Lender 2 – $850,000
In both instances a valuer visited the property in person, yet there is a 15% difference of opinion. Huge difference in the amount of cash available to release as equity, or even the difference between the deal being a deal or not.
One more…property in Sydney – 4-bedroom house NSW
Lender 1 – $1,775,000
Lender 2 – $2,030,000
Lender 2 was an automated valuation… I know which one I prefer? In this case it was an equity release and their current lender was the lender who provided the higher valuation… lucky we did both valuations, and didn’t just look at the “best interest rate”.
Just last month, we had a client who wanted us to buy them a second investment property. They’d planned to access equity in a property they owned in WA to use as a deposit. Initially they were only interested in the cheapest lender on the market as far as rate. But a valuation lower than what they’d expected literally stopped them in their tracks.
The client thought they’d be able to buy a new property up to $500,000, but after the low valuation, the most they could look at was $285,000. That’s a serious roadblock when you’re investing in property.
We did a second valuation on the same WA property with a different lender. The second valuation came in higher, and allowed the client to easily look at buying up to the $500,000 mark. Guess what the difference in rate was? Only 0.05%, and to think they nearly gave up the opportunity to buy their next property.
I guess the lesson here is, just because your current bank says your property is worth x, chances are, there may be an opportunity to review this with another lender.
Right now, we see cash as king. So, releasing cash to plan for the future “just in case” or to use for the renovations you have planned could be a great idea!
Lending has opened up massively in comparison to 12 months ago. Fixed rates for home loans are in the low 2%’s with some great variable options available too.
Yes there are limitations if you are receiving JobKeeper, or if Covid 19 has affected your business. But we have seen those clients that may have been affected at the start of the first lockdown, now back in business and working to normal levels. It’s a matter of explaining the situation to the lender in a way they are happy with. That’s where we can help, its what we do!
Our office is open for business, and with a pool of properties purchased for our investor clients this month, we’re busy busy helping clients!!! Anthony did a trip two weeks ago and we’ve wrapped up 5 new properties in QLD for clients. We’ll update you on those in the coming weeks.
If any of the above gets you thinking, we’d love to chat to you and see if there is something we can help with.