Oct 4, 2024 3:29:19 PM

Using Your Home’s Equity to Build a Property Portfolio in Australia

Topics: Property Investment 0

For homeowners in Australia, now might be the perfect time to consider growing a property portfolio. Property values are on the rise and an undersupply of housing is driving up rental prices. Using the equity in an existing property could help you secure a viable investment. But before diving in, it’s essential to understand what equity is, how to build it, and how to use it wisely. Here are our top tips for using your home’s equity to build a property portfolio in Australia.

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What is equity?

Equity is the difference between the current market value of your home and what you still owe on your mortgage. For example, if your home is worth $800,000 and you still owe $400,000, you have $400,000 in equity. This equity could be used as a deposit to buy another property or for other financial goals.

To build equity in your home, you need to increase the difference between your home’s value and the amount you owe on your mortgage. You can do that by paying down your mortgage - the more you pay off your loan, the more equity you gain – or by increasing your property’s value. As property prices rise or as you make home improvements that add value, your home’s value increases, and you build more equity.

How to access equity?

Equity can be a powerful tool for property investors as it can be used as a deposit when buying an investment property or to pay for renovations that add value to your existing property. Accessing equity is similar to applying for a new home loan. You’ll need to:

Lenders will typically let you borrow up to 80% of the value of your home, less what you still owe. For example, if your home is worth $800,000 and you owe $400,000, you might be able to access up to $240,000 in equity (80% of $800,000 is $640,000, and $640,000 minus your $400,000 mortgage gives you $240,000 in usable equity).

Is now the right time?

Across most states, property prices are continuing to rise, albeit at a slower pace than earlier in the year. More homes are being sold under the hammer and auction clearance rates are up too. According to CoreLogic, 68.2% of properties were successfully sold at auction in the last week of September 2024. This trend is likely to continue for the remainder of the year, as the ongoing undersupply of properties relative to demand drives up property prices and rents.

If you’re considering stepping onto the property investment ladder for the first time, or you’d like to know more about accessing your equity to finance a home renovation to improve your home’s value, contact a Mortgage Express broker today. Get helpful advice to make an informed decision about using your equity wisely. We can also connect you with the team at Harcourts for a full property appraisal.

 


While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.