These are tough times if you need a loan but don’t have sufficient or unencumbered property to offer as a collateral to the Bank or other financial institution. Cash is King and if you need more liquidity fast but your first mortgage lender will not advance any more or cannot act quickly, you might be in unforeseen trouble. A Second mortgage might be the best possible option at this difficult time.
Like many other countries of the world, the mortgage market in Australia has tightened considerably and extensions or increases to existing facilities that might have been offered 12 months ago are simply not available today. Many people in Australia, especially those in small business have been able to overcome short-term financial hazards or “cash crisis” and improve their position through a short-term second mortgage.
Second Mortgage
You may or may not have heard about second mortgages. In simple terms, a second mortgage is made against the same property, which is offered as a collateral in the first mortgage but usually to a different lender. Hence, it is considered subordinate to the first mortgage and ranks behind the first mortgage in terms of security.
The interest rate of second mortgage is higher than the first mortgage. This is because, in case of default, the first mortgage is paid out first then the second mortgage is satisfied from the remaining equity.
Usability of Second Mortgage
In a nutshell, a second mortgage is most beneficial when the borrower needs finance for a specific purpose for a short period of time and they can see how the second mortgage finance can be repaid in the short term. It is a good source of finance for opportunistic investments, or to satisfy an urgent unexpected expense. It is often used as a short-term cure for a business cash crunch or even to take advantage of a business opportunity that presents itself where the business operator can see that he or she can make money, IF they have some money NOW!
Other reasons for a short-term second mortgage might include the need of improvement of existing homes prior to sale, or bridging finance for the purchase of a new property prior to the sale of an existing property.
Overview of mortgage market in Australia
The Australian mortgage market witnessed a tremendous boom during 2003 and 2004. However, earlier this year the market observed a sharp decline in its rate of growth with 12% growth being recorded in contrast to 22 % in 2004.
An analysis conducted by InfoChoice and The Sheet estimates that the Australian mortgage market presently stands at $922 billion. It has been observed that this estimate is around three times greater than the report of Reserve of Australia. It is noteworthy that this study is also 12% bigger than the all-banks estimate in the mortgage industry of Australian Prudential Regulation Authority.
As a rule all big banks play a major role in the market, but usually only provide loans against first mortgage security and do not operate in the second mortgage space. Finance and mortgage brokers originate an increasing share of this Australian mortgage market and these brokers can usually source either first or second mortgages from a wide range of lenders.
Rise of Second Mortgage in Australia
As traditional lenders become more reluctant to lend to existing customers due to tighter credit requirement and liquidity limitations continue in the banking system, more and more borrowers with a need for a short term remedy are turning to a second mortgage lenders to solve their temporary or short term liquidity problem to take advantage of opportunities or to solve their short terms problems.
To be eligible for a second mortgage, you must have surplus equity in your current property. This means that you must owe less with your current mortgage than the value of the property. The second mortgage lender will need to be comfortable that there is a good commercial reason for the loan and that there is an “exit strategy” for the loan. This means that the second mortgage lender can see how the loan is coming to be repaid through some event or process that will satisfy the advance and the charges for the loan.
Australia offers profitable opportunities for city investment as well as Australia commercial properties for sale in current property hotspots in coastal resorts such as those in Western Australia and North Queensland.
Intelligent investors are making the most of today’s real estate market in Australia, while opportunities still last, for land, buy-to-let and pure investment options and for >”>Australia commercial properties.
There is a strong supply pipeline with a significant element of speculative development, restrained rental growth in 2007, with rents remaining relatively static in the western regions.
According to Australasian Industrial Property Guide Winter 2008, the North and South were the only two regions to experience notable rental growth. In 2007, 776,118m2 of industrial space was leased throughout Sydney industrial markets across 201 reported transactions. The Outer West region dominated leasing activity, accounting for 47% of recorded lease transactions.
Record supply levels were recorded in 2007, with 921,221m2 entering the Sydney industrial market, up 42% from 2006. However, 2008 is set to exceed this record by a substantial 42%, and break the 1 million mark with 1.31 million sqm due for completion. The Outer West will continue to lead the charge, housing 52% of this new stock.
Construction of warehousing and distribution centres continues to rise driven by strong demand for imports, accounting for 64% of new stock to enter the market in 2008 (Australasian Industrial Property Guide Winter 2008).
Australia commercial properties are wide ranging due to the sheer magnitude of the country. Buyers of Australia commercial properties are looking for a buoyant market in which to invest and are looking at various areas where the local economy is growing and the job market is strong, bringing with it a healthy supply of tenants for rentals as well as home purchasers.
The real estate market in Australia is on the up and in particular the stunning city of Sydney.
Sydney is the largest financial and corporate center in Australia.The city is home to more than half of Australia’s top corporations as well as five hundred multinational corporations. There are also ninety bank headquarters located in Sydney. The tourism industry is a large part of the city and there are approximately 2.5 million tourists annually. Attractions such as ‘walking’ the Sydney Harbour Bridge are booked up months in advance. The city is buzzing with activity and a visit will reveal that the high rise office blocks are full of big business.
Property in Sydney is a valued commodity, as they have the highest median house price of any Australian city. International property investors would be able to compare the cost in housing to that of California in the United States. Australia also has the Western World’s highest property prices when measured against rental prices.
The value of Sydney property market has traditionally doubled in value every 7-10 years over the last 100 years. Sydney’s current median price for houses is now over $565,000 and leading economic forecasters BIS Shrapnel and Residex predict house prices will continue to rise over the long term.
The city is rich in arts and entertainment and many of the visitors and citizens of the city are interested or involved in this area in some way. Fox Studios Australia opened in 1998 and many famous movies have been produced here including Moulin Rouge, Star Wars Episodes II and III, Superman Returns, and The Matrix. Sydney’s Opera House is capable of hosting various styles of opera in its five theaters. The opera house is home to Opera Australia, which is the third busiest opera company in the world. These attractions draw a large number of aspiring actors and actresses as well as tourists. Those looking to invest in oversea property would be keen to invest in property that can be rented out to those in these areas.
Sydney also hosts numerous sporting events.Sydney Harbour has been used for recreational yachting as well Dragon Boat racing. The harbour is also famous for the Sydney to Hobart Yacht Race. The headquarters of the Australian Rugby League is also located in Sydney and the National Rugby League Grand Final is held in Telstra Stadium. Famous beaches in the area include Bondi Beach, Manly Beach, Palm Beach and Cronulla Beach.
The property along these beaches is some of the best real estate in the city. Suburbs such as Manly or Mosman are in high demand. Australia offers investment property in the form city apartments that are easily let to city workers.
My advice is to seek out a reliable Australian real estate agent after all Sydney property is an Australian thing
Australia is a country of so many extremes, being the sixth largest country in the world (50% larger than Europe) but having the lowest population density in the world, some 2 people per square kilometre. The country has historically strong links to Britain, with the Queen still the official monarchy of the country, although the history of Australia is very colourful. Initially populated by the aborigines, the country was used as a place to ship prisoners many years ago. Slowly but surely the aborigine influence in the country was reduced, and western style values introduced.
The country was originally made up of six separate states, although they formed a union in 1901 to create Australia. It was not until Captain James Cook arrived in 1770, that the country was actually discovered by the Europeans. A place of immense beauty, stifling hot weather conditions and one of the most laid back social attitudes in the western world. Australia really is a special place.
Many of the worlds main mineral companies have originated from Australia, as the land of “Oz” continues to supply a large majority of the worlds precious metals, etc. The economy has been fairly strong for some time, although historically there have been large peaks and troughs in line with the swing in commodity prices. This dependence has since been diluted with the country now offering a broader more diverse business scene.
While the mass media portray Australia as a vast and varied land, it is difficult to actually appreciate the size and beauty of the land. Golden white beaches give way to golden white desert land, with many towns and settlements hundreds of miles away from the hustle and bustle of main stream Australia. The famous flying doctor is still in existence, and many of the families rely on the internet and other modern day technology to actually educate their children. A vast and prosperous land, with many investment opportunities.
Property Market
As the business base of Australia has moved away from the dominance of natural resources, the economy has become much more balanced. Still growing and adjusting to the changes, the economy has been one of the better performing worldwide, since 1990. Relatively stronger than most of their European counterparts in the worldwide down turn in early 2000, the economy has thrown up a number of interesting opportunities for foreign capital.
Due to the sheer size of the country, and the extreme difference in population per kilometre, the market for property in Australia is very diverse. Historically it is the main inland cities of Melbourne and Sydney which have pushed the Australian property market ahead, although the coastal areas with strong popular tourist attractions also performing well. Quality Australian property will always hold an attraction to the foreign investor as the infrastructure in many parts of the country is weak, and sometimes nearly non-existent.
While the vast majority of Australians own their own homes, there is a strong rental market which now represents 29% of all dwellings in the country. There are very many similarities with the UK and Australian economies and style of government, although the fundamental difference is that Australia will never run out of land to develop, although the quality of local services may well diminish the further away you move from the main cities and coastal towns.
The Australian property market has been relatively strong for some time, but due to the high concentration of attractive properties in a limited number of areas, the market can show large short term fluctuations. These tend to flatten out as the slow but sure expansion of the larger cities continues, and investors also look for cheaper alternative areas in the less populated parts of the country. To spot Australia’s next growth city could throw up a very lucrative investment.
Why Invest in Australia
Australia offers a unique investment opportunity for those looking at the longer term picture, due in the main to the strong economy, increase in gross domestic product, buoyant labour market and a western style attitude to attracting outside investment.
As the business and employment markets continue to develop with opportunities in all areas of the country, we are seeing a slow shift from owner buyers to long term rental agreements. This market is expected to grow further in the coming years, and offers would be investors a quality long term income stream, together with the potential for long term capital growth.
While air travel from Britain and other parts of Europe is lengthy, there are a number of commercial routes from Europe to Australia as the country continues to retain strong ties with European counter-parts. The free market culture is proving very successful, producing a number of larger Australian corporations who have diversified all over the world – media being one of the main exports.
Add in the ease with which finance is available – often on a short term agreements, allowing maximum tax relief on loans (usually 5 – 10 years, rather than in excess of 20 years in the UK) – not to mention the attractive landscapes and scorching hot weather, it is easy to see why tourism is playing a larger and larger part in the economy of Australia.
Outlook
Historically the Australian economy has seen a number of volatile phases, although over recent years there are signs of a more gradual increase which looks set to continue. The forecast is underpinned by a stable interest rate outlook, proactive government policies to resist the threat of over heating, a thriving employment sector and stable inflation. These all add up to a great scenario for long term property value appreciation, although there will always be “hot spots” in the country, due to the vast difference in population density.
The buy to let market has been showing particular strength, and is currently offering rental returns in the region of 8% – 9%, while properties in Australia a showing capital appreciation averaging approximately 10% per annum. The government are also increasing expenditure outside of the major cities and tourist areas, which is encouraging property investors to consider looking further afield than just the high population density areas. The country has a lot to offer both the tourism industry and the overseas investor, with the Australian property market particularly attractive.
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It is a common scenario worldwide that any property bought by an individual as a long term investment always appreciates in value. The Australian property market is no exception with a recent survey noting that in Australia investors have made remarkable gains on property investments.
According to the survey, in Australia over 90% of property investors surf the net to find the right investment property. Investment in property is usually considered by buyers after the purchase of the primary family home, thereby gradually growing the investor’s property portfolio. This second property can then be used to make money from rental or resale profits. Investing in property is a long term venture.
When it comes to dealing in property, buyers are initially looking at the location and condition of property on the market. Then financial considerations must be made, weighing up the value for money in potential investments. When a buyer is properly informed in matters of location and costs they are then able to make better choices in selecting property, thereby securing better gains whether buying in Australia or overseas. For all these matters one needs expert advice and real-estate websites provide a great resource for those looking to buy property. These sites allow one to make property searches free of charge, offering the best deals with proper guidance and at the best rates.
Today, GDP growth, budget surplus and reduced unemployment rates hint at better times ahead for the property market in Australia. Under the current circumstances, demand for property has outstripped the supply consequently pushing up the rental rates. This provides a “best of both worlds” situation for shrewd investors. With rising interest rates, developers are now offering buyers cash funds and attractive rates, and those who have surplus funds for disposal get better deals.
In such a situation first time buyers keep a low profile while the more experienced buyer always taps the right source to make a better proposition. Developers take the current situation into account in their costing. Bulk buyers stand to gain as they have better bargaining powers. Rising demand for rental housing has provided boon to cash rich investors. This situation has proved the recent survey by The Housing Industry Association in Australia which predicted a fall in property rates.
Permanent residents of Australia are free to buy any property, but foreign nationals require permission from the Australian Government before making any investment in property. When buying property with borrowed funds, a 10% deposit of the total loan value is needed. Transaction cost is around 5%, this includes stamp duty, insurance of property, legal and other fees.
As Australia is the fourth largest pension market of the world, investment in property is more accessible for potential investors. It is still possible to make good returns if buying in the more expensive capital cities in Australia. Popular cities for property investment in Australia are Sydney, Perth, Melbourne, Brisbane and Adelaide. As majority of the population lives near ports and costal areas, these locations will always have short supply of property and rates will keep mounting whether the property market slows down or not. When coastal areas fail to meet the demand, nearby areas will catch the attention of investors and in turn these outer city regions will fetch good returns. Consequently the decentralization of residential areas will occur providing more opportunities to investors. Further development of infrastructure with rail and road links will also encourage the growth of these new property markets.
Governments may consider tax and stamp duty concessions and cheaper finance so that the centralization of the property market can be prevented. According to recent reports, the Australian Government is considering changes to the rules associated with the related costs of property investment.
Therefore it is important for any real-estate website to highlight such opportunities, thereby providing better options for people thinking about value for money. Such sites should also include the details of financial institutions, interest rates, property tax information and hints about where to buy. It is also necessary to highlight the infrastructural development that is taking place in and around the chosen locations.
While giving such information these websites also provide a guide as to how to comply with the final formalities and what documentation is required when buying property. So it becomes very easy for an investor proposing to buy a property to get all the important information at their disposal.
