Whatever stage of life you’re at – whether a first home buyer, upsizing or downsizing, or looking to invest – there are things to consider before you jump into the property market.

Buying a new home can be extremely exciting – at whatever stage of life. For first-home buyers, it can mean entering a fresh chapter, with newfound space and responsibilities. For those upgrading property, perhaps to make way for new family members, it offers the chance to live in your dream home.

When the kids move out, and you just don’t need all those rooms, downsizing into retirement can introduce renewed freedom and extra cash flow. And for investors, there’s the thrill of expanding your portfolio and having a passive income stream so you can live comfortably through your golden years.

For plenty of reasons, now is a good time to enter the property market, not in the least low interest rates. But consider all the factors before you take the leap: the usual suspects, like the hidden costs of buying a home. Plus implications specific to the current economic climate, including surging property prices. Not to mention APRA’s (Australian Prudential Regulation Authority) attempt to curb this boom – or rather, the growing debt created by it – by increasing the minimum interest rate buffer in home loan applications from 2.5% to 3% by the end of October1, reducing the maximum borrowing capacity of typical borrowers.     

AMP Capital’s Chief Economist Shane Oliver shares some insights into entering the property market over the next six months.


First Home Buyers: Buying a new home

Sydney’s median house price is now more than $1.4 million, with the national median hovering around $955,0002. These are difficult figures to swallow for first home buyers looking to enter the market.

“It's getting pretty tough for first-time buyers,” says Oliver, admitting that while some property bargains could be had mid-2020, at the height of Australian lockdowns, these have all but disappeared in 2021.

Oliver recommends keeping some key facts in mind when you’re looking to enter the property market for the first time:

  1. Home loan interest rates are still low. For new variable loans, the average home loan rate for first time buyers is 2.68%3. “The Reserve Bank of Australia tells us they don’t anticipate raising short-term interest rates until 2024 at the earliest,” says Oliver, noting the RBA’s forecast is the main driver of variable interest rates. While some fixed-term interest rates have started to rise, they are still below the variable rate, he says.
  2. Still some government incentives exist for first home buyers, including the First Home Owner Grant. While these vary between states and territories, the Australian Government’s First Home Loan Deposit Scheme4 is designed to help you purchase your property sooner.  Australian Government: First Home Loan Deposit Scheme
  3. Property prices are at an all-time high. “Affordability has started to deteriorate,” says Oliver. “Many first-home buyers may have to lower their sights in terms of what they can actually afford.”
  4. APRA’s change in lenders’ ‘serviceability buffer’ means that those looking to buy their first home will have a reduced borrowing capacity of about 5%5 . So if you could borrow $1 million before, you will only be able to borrow $950,000 in the future. APRA (October 2021): APRA increases banks’ loan serviceability expectations to counter rising risks in home lending.

TIP: Use a home loan interest rate calculator to find out what your mortgage repayments might be. 

Upsizers: Buying a second home

A booming market is brilliant news for most homeowners – and the Australian property market is certainly doing just that right now. Statistics show record residential property price growth across the country, with values rising 6.7% in the June 2021 quarter, the strongest growth since the Australian Bureau of Statistics’ Residential Property Price Index began in 2003. Figures were particularly strong for Canberra and Sydney, both seeing rises over 8%6.

This is music to the ears of upsizers selling their home. But runaway prices can pose a challenge when it comes time to re-entering the market and buying a second home. When all properties are increasing in value, the gap between your existing home and your dream home continues to grow. Which makes it increasingly difficult to step up to that next level of property ownership.

  1.  You’ll have no trouble selling your existing house. And the upside of all the competition, says Oliver, is that you’ll likely sell it for more than you anticipated.
  2.  Home loan interest rates are still low. For outstanding variable loans, the average rate is 3.03%7.
  3.  Competition is high. Oliver says that consumer confidence is on the rebound. And when people feel comfortable in their job and financial position, they’re more likely to consider bigger purchases, like upgrading their home. “When you upsize right now, you're going to find more competition to do it,” says Oliver.

Downsizers: Moving into a smaller home

In recent years, a number of government initiatives8, 9(including the downsizer contribution) have sought to encourage those close to retirement to downsize, with the goal of freeing property for people looking to enter the market.

This, paired with the fact that property sales are at an all-time high, make downsizing now an attractive prospect, says Oliver.

“This is actually a good environment for downsizers. Because if you’ve got a house out there in the suburbs, the kids left 5-10 years ago, and you want to downsize to something smaller, perhaps in a different location but cheaper, you’re actually doing quite well, because you can sell your house for top dollar.”

  1. Competition is high. “There are a lot of buyers out there who want your home,” says Oliver. In Sydney alone, clearance rates on properties for sale at auction was 86% for the week ending 9 October 2021, compared to 65% at this time last year10. This, in turn, is driving up the prices of property across the country.
  2. Selling your house for ‘top dollar’ means you can transition into something more affordable. Oliver says, “you’re also going to find competition out there in that more affordable, downsize property, but the gap between the two is going to be quite big.”
  3. This big ‘gap’ means you will likely make big savings, allowing you to free up cash flow to do the things you want in your retirement. “Assuming you’ve paid off all your debt in your mortgage,” says Oliver.  

Investors: Buying an investment property

The latest statistics offer firm evidence that property investors are coming back in force after retreating from the market last year. Housing finance data shows investors borrowed $9.49 billion in August 2021, accounting for almost a third of all money borrowed for housing across the country. The figure has surged 92.2%, year on year11.

Consumer confidence on the rise, ongoing tax incentives12 and low home loan interest rates have all buoyed the sector.   

While investor confidence is back, there are a number of things to consider before jumping into this market, says Oliver. 

“For investors, make sure you go to areas where growth is reasonably assured and also where you don’t have a lot of vacancy, for good rental income.”

  1. Regional Australia is showing a long-term growth in demand, which could benefit investors there, says Oliver. “A lot of Australians have suddenly rediscovered regional Australia. They want to work from home, and where best to do that but in regions where you can get good-quality property, enjoy a good lifestyle, and have a much bigger home?”
  2. Rental returns have not kept up with gains in prices. “While rental income was a big chunk of the return you got 20-30 years ago, these days yields are a lot lower,” says Oliver.  
  3. Many parts of major cities have an oversupply of property, due to recent large-scale residential projects, which may mean you won’t achieve an expected return on capital growth over time. On this note, also consider the capital gains tax you may have to pay when selling your investment property.  
  4. APRA’s change in lenders’ ‘serviceability buffer’ is expected to have the largest impact on investors, as (on average) they tend to borrow at higher levels and may have other existing debts, which the buffer will also be applied to13 So if you could borrow $1 million before, you will only be able to borrow $950,000 in the future.






1 APRA (October 2021): Strengthening residential mortgage lending assessments
2 Domain.com.au (July 2021): Sydney house prices reach record median $1,410,133, rising almost 1,200 a day in just three months
3 Reserve Bank of Australia (August 2021): Lenders’ Interest Rates
4 Australian Government: First Home Loan Deposit Scheme
5 APRA (October 2021): APRA increases banks’ loan serviceability expectations to counter rising risks in home lending
6 Australian Bureau of Statistics (September 2021): Residential property price growth strongest on record
7 Reserve Bank of Australia (August 2021): Lenders’ Interest Rates
8 Australian Taxation Office: Downsizing contributions into superannuation
9 Australian Taxation Office: Downsizer super – reducing the eligibility age for downsizer contributions
10 Domin.com.au (October 2021): Sydney Auction Results
11 Australian Bureau of Statistics (August 2021): Lending indicators
12 Australian Government, The Treasury: What is negative gearing?

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