How will the interest rate cut impact investors?

Earlier this month the Reserve Bank declared a drop in interest rates to a historical low of 1.75 per cent. Interest rates are now the lowest they have been in 41 years. This is significant news for the property industry, with buyers jumping on the opportunity to invest. For investors, the drop in interest rates means greater mortgage affordability with cheaper repayments on future fixed and variable home loans. Although the recent drop in interest rates provides a great opportunity for new investors to jump into the property market, there are a few things to consider before purchasing.

Here are some tips to get started.

Get pre qualified

The first step to entering the property market is to speak to a professional property advisor. Property advisors can help investors get started with formulating an investment strategy and assist in finding where and when to invest. Importantly, property advisors can help investors get pre qualified for a home loan. Getting pre qualified involves discussing credit, income and assets and in turn concluding what type of investment can be made. Getting pre qualified before making major investment decisions is vitally important to knowing what type of properties you can afford in the market.

Plan your investment

For new investors, it’s important to create a purchasing plan in which investment risks are weighed up. While interest rates are currently low, when applying for a variable loan, it’s important to note that rates will change and could increase again over the period of your home loan. This factor should be taken into consideration within your investment plan. Also to be considered in an investment plan is a budget scheme, outlining income distribution and how investment repayments will be made.

Look to the property cycle

The property market acts in a cyclical manner. The CPS property wheel illustrates the property cycle and gives an insight into where and when to invest. The property market is comprised of multiple markets, segmented by location and demographics. What this means is that though it might be the wrong time to invest in one area, it will be the right time to invest in another area. For example, while property prices are still soaring in Sydney, Brisbane has remained much more affordable. However, rapid expansion to infrastructure in Brisbane, including expansion to Brisbane Airport in late 2016 will see a decline in property vacancies, a rise in property demand and rising capital growth, making Brisbane a prime location to invest now.

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