How Changing Property Values in Australia Impact Your Home Loan Options

Property values in Australia have shown remarkable movement, with Perth experiencing a staggering 76.8% increase since COVID-19 began. This significant shift has created a complex landscape for anyone considering a home loan in Australia today. In fact, with property values in Australia expected to rise by 5% in both 2024 and 2025, homeowners face new challenges and opportunities. As a result, we’re seeing unprecedented changes in home loan options, with nearly 693,000 homeowners expected to refinance by the end of 2024. Consequently, understanding how these changing property values in Australia affect your borrowing potential has never been more crucial.

Understanding Property Values in Today’s Market

The Australian housing market shows distinct patterns across different regions, with national house prices increasing by 5.1% in 2024. Primarily, Western Australia and Queensland are leading the growth, with Bunbury recording a remarkable 15.8% annual increase. Additionally, regional markets have outperformed capital cities, achieving a 1.2% quarterly growth compared to 1.0% in metropolitan areas. This trend reflects a shift in buyer preferences, particularly in areas offering a mix of agriculture, tourism, and mining opportunities. The market, however, faces some headwinds. High interest rates and ongoing cost-of-living pressures have influenced buyer behavior throughout 2024. Furthermore, rental price growth has moderated from 7.8% in March to 6.7% in September 2024, indicating a gradual market adjustment.

Notable regional variations have emerged:

• Western Australia’s coastal towns of Albany and Bunbury lead with quarterly rises of 7.7% and 6.2% respectively
• Queensland’s Bundaberg and Rockhampton both achieved 12.0% annual growth
• Tasmania’s Launceston and Devonport experienced declines of -2.3% and -2.0%

How Property Values Affect Your LVR

Loan-to-Value Ratio (LVR) serves as a crucial metric in determining your borrowing capacity in the Australian home loan market. Your LVR is calculated by dividing your loan amount by the property’s value and multiplying by 100. For instance, when borrowing $540,000 for a $600,000 property, your LVR would be 90%. Notably, lenders use their own valuation process, which often differs from market estimates. A professional valuer performs this assessment to determine what the lender might recover if the borrower defaults. Therefore, if a bank values your property lower than the purchase price, your LVR increases, potentially affecting your loan terms.

Most lenders consider loans with an LVR above 80% as higher risk. Here’s how different LVR levels affect your borrowing:

• Standard LVR (80%): Offers more favorable loan conditions with no Lender’s Mortgage Insurance (LMI)
• High LVR (90-95%): Requires LMI and often comes with higher interest rates
• Low Doc LVR (60%): Available for self-employed borrowers without earnings proof

Moreover, your LVR directly influences interest rates and borrowing costs. A lower LVR typically results in more competitive rates and better loan terms. Essentially, for every 10% increase in property value, borrowers tend to extract 2% more equity.

For personalized guidance on optimizing your LVR and securing better loan terms, Efficient Capital’s experts can help evaluate your options based on current property values in Australia. 

Conclusion

Property values in Australia tell a compelling story of growth and opportunity, particularly with Perth’s remarkable 76.8% increase since COVID-19. These shifts create both challenges and possibilities for homeowners and potential buyers alike. Market forecasts suggest continued growth, with expected rises of 5% through 2024 and 2025. Accordingly, your LVR calculations and refinancing options might look different today than they did just months ago. Understanding these changes helps make informed decisions about home loans and refinancing opportunities. 

Ultimately, navigating Australia’s dynamic property market requires expert guidance. Efficient Capital stands ready to help you understand your options and secure the best possible home loan solutions for your unique situation. Whether you’re considering a new loan or refinancing an existing one, our team can guide you through each step of the process.