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Only 1 in 10 Aussies using property equity to their advantage

 

28 June 2014

New research from the Westpac Upgraders Report has revealed that only one in ten (11%) Australian borrowers are looking to use equity in their property to upgrade.

Equity is the part of a property that is owned outright - for example, if a property is worth $300,000 and is supported by a $200,000 loan, the total equity is $100,000.

"It is surprising to see the low number of borrowers looking to use the equity in their current home, meaning some Australians could be missing out on an opportunity to build their long term wealth," said Gai McGrath, Westpac General Manager of Retail Banking. 

The report also found that the average length of a variable home loan is between 21 and 30 years (79%), and a quarter (23%) are approximately mid-way through this period (with between 5 and 14 years remaining).

"It is at this mid-point that there are often several ways you could use the equity in your home. Common strategies include leveraging the equity in your property to upgrade to a larger home, purchasing an investment property, renovating your property to increase its resell value or even taking a repayment holiday if you have a significant 'life event' coming up, such as a baby on the way," added Ms McGrath.

The report showed two thirds (67%) of Australian borrowers are focussed on paying off their home loan ahead of the full loan term. 

"While some borrowers are looking to use their equity, there are also many Australians who are determined to pay off their home loan sooner and become true 'home owners'.

"To this end, we encourage people to use features in their home loan like offset accounts or increase the frequency of their repayments. It still surprises me that more than half of borrowers do not use an offset account, yet it is one of the simplest ways to reduce the interest and term on a loan," said Ms McGrath. 

About the Westpac Upgraders Report

This survey was commissioned by Westpac and powered by Sweeney Research. Sweeney surveyed 2,686 Australians who have a home loan. It was conducted between 9 May and 26 May 2014.

Key findings:

  • The majority (79%) of Australians take out a home loan for between 21 and 30 years, and a quarter (23%) are mid-way through this period  (between 5 and 15 years remaining)
  • More than half (58%) of Australians who have a home loan do not use an offset account 
  • The majority (79%) of home loans are taken out for between 21 and 30 years 
  • 1  in 10 (11%) Australians with a home loan are looking to use the equity in their home to upgrade 
  • Two thirds (67%) are trying to pay off their home loan ahead of the full loan term 
  • 2 in 5 (22%) Australians with a home loan have an investment property

Tips on leveraging the equity in your home

  1. Move into a larger dwelling: the equity in your current home may allow you to move straight into a new property without a deposit. You can effectively transfer your existing home loan over to the new property, using the amount you've already paid off, and any capital growth gained since purchasing the property, to buy a larger property or a similar property in a more upmarket area.
  2. Renovate: you can 'top up' your loan by taking a percentage of your equity to renovate, potentially increasing its re-sell value.
  3. Repayment holiday: If you are ahead on your home loan repayments, you may be able to take a repayment holiday. This can be useful if you're heading overseas or taking some time away from work to have children.