Releasing equity in UK to buy in Australia?

[Thisforumisalifesaver]

HI all,

Has anyone here ever released some equity in their UK property to buy a property in the UK? I just want to gauge everyone's opinion/experience on this whether it is an option worth considering or not for me.

I recently was granted the PR (100), and intend to keep my property in the UK whilst gearing up to buy a property in Australia in the near future (once my wife & I are settled there with job/life etc, in the interim will be staying with the "outlaws" ).

I'm keen to keep my property in UK for quite some time and have a fairly low LTV (Loan-to-value), and can scrape just about enough UK savings for say a 20% deposit in Melbourne. I just want to lay out all the options in case I have missed any, and pros and cons of each one:

Option A: Rent out UK property; no equity release; use UK cash savings for a 20% deposit in Australia
Option B: Rent out UK property; release some equity; use UK cash savings and cash from equity release for a bigger deposit in Australia
Option C: Sell UK property; use cash from UK home sale for a outright purchase or large deposit in Australia

The factors I've been thinking out loud are FX risk, tax implications, hassle (time and effort), interest rates UK vs Aus, Brexit ... etc. 

Thanks in advance for your valuable feedback!

[SusieRoo]

I would probably look for an Option D, Sell everything and rent for a couple of years until Melbourne (and UK) property prices stop falling.

Edited April 10, 2019 by SusieRoo

[Thisforumisalifesaver]

Thanks @SusieRoo Option D is indeed also worth considering. I'm aware of the Aus housing market price drop but hadn't realised how much it's falling until after reading other posts who pointed to CoreLogic property values index.

Am just mindful that I don't want to sell up my UK home immediately whilst we are in this Brexit turmoil until I absolutely have to. In the meantime exploring other options like using savings or releasing equity..

 

[Marisawright]

I suggest looking into the tax implications of renting out a UK property while being legally resident in Australia.   It means you have to submit two tax returns every year (one in the UK, one in Australia) every year.  Once you eventually sell, you'll be taxed on the capital gains and also on Fx gains, so you need to check how much that would slash off your profit.  

Bottom line, it can be a good investment, but there is a lot of paperwork involved so it depends on your tolerance for that kind of hassle.

If you want to release equity, then you need to remortgage while you're still resident in the UK, because it will be much more difficult to do once you're no longer resident. 

Some commentators think the Melbourne market is already near the bottom and is about to turn back up.  There is such a huge influx of population into Melbourne now, there's a lot of demand.

[Thisforumisalifesaver]

Many thanks @Marisawright for your feedback! Yes tax implications and hassle is a big factor. Quite alot to think about and factor in indeed  (amongst other important things like finding a job, settling in etc).

Yes Melbourne is likely to be on the up again very soon and depends on the amount of influx on each suburb as well.

[SusieRoo]

7 hours ago, Marisawright said:

Some commentators think the Melbourne market is already near the bottom and is about to turn back up.  There is such a huge influx of population into Melbourne now, there's a lot of demand.

Some other commentator think Armageddon is about to happen, but who knows what to believe. Personally I would not risk buying property in a falling market, especially with only 20% deposit. Remember that hard earned deposit will evaporate first if prices keep falling and be wary of the sales patter.

[SusieRoo]

"Moody's dramatically downgrades its forecasts for house prices"

I just noticed this article in todays SMH (link - https://www.smh.com.au/business/the-economy/imf-and-ratings-agencies-warn-of-more-financial-pain-for-australian-economy-20190409-p51cdh.html)

"In January, Moody's forecast Sydney house prices would drop by 3.3 per cent through 2019. It now believes the drop will be 9.3 per cent. Melbourne's drop-off is even more acute, with the agency now predicting an 11.4 per cent fall in the city's house prices."

[Thisforumisalifesaver]

10 hours ago, SusieRoo said:

"Moody's dramatically downgrades its forecasts for house prices"

I just noticed this article in todays SMH (link - https://www.smh.com.au/business/the-economy/imf-and-ratings-agencies-warn-of-more-financial-pain-for-australian-economy-20190409-p51cdh.html)

"In January, Moody's forecast Sydney house prices would drop by 3.3 per cent through 2019. It now believes the drop will be 9.3 per cent. Melbourne's drop-off is even more acute, with the agency now predicting an 11.4 per cent fall in the city's house prices."

Interesting article, their outlook is gloomy not just for Aus but for rest of the developed economies ... One thing I won't do is jump the gun and buy straight away in Melb.

Yes indeed, there's an element of risk when buying in a falling market.. also depends how long you are planning on living in that property (short/long term) etc.

[SusieRoo]

Yes, a lot of gloomy news about at the moment. I‘m far too old to buy into conspiracy theories, but there appears to be lots of planning in high places (central banks, IMF, hedge funds) in case of a significant global downturn. I guess a lot of expert missed the signs before the 2008 GFC and they are trying to get it right this time.

I’m no expert myself, but from what I understand very low interest rates and QE (money printing) have created asset bubbles in many countries. Mainly in stock markets and property and Australia has produced one of the most fragile bubble of all in housing. Due to the relative simplicity of the Australian economy, there are concerns that falling property prices will impact on the wider economy.

I think a good indicator this year will be the unemployment statistics (which are still ok at the moment) but if unemployment deteriorates, it will probably mean house prices will keep falling.

[Marisawright]

3 hours ago, Thisforumisalifesaver said:

Yes indeed, there's an element of risk when buying in a falling market.. also depends how long you are planning on living in that property (short/long term) etc.

One point worth noting is that it's not a "normal" falling market.  Melbourne house prices went ballistic about two years ago.  Although people are getting their knickers in a knot about the current drop, prices are still higher today than they were two years ago!   For instance, shortly after we arrived, we almost bought a unit for $650,000.   We didn't (still kicking myself).  Another unit in the same block is now on sale for $700,000, even though prices have dropped back in the last few months. 

[SusieRoo]

I wouldn't kick yourself too hard as you may be able to get that unit for $500,000 or less by the end of the year.

[Peach]

45 minutes ago, SusieRoo said:

I wouldn't kick yourself too hard as you may be able to get that unit for $500,000 or less by the end of the year.

Spruiking the market downwards, much?  Hope you get the house you want.

[newjez]

19 minutes ago, Peach said:

Spruiking the market downwards, much?  Hope you get the house you want.

https://www.corelogic.com.au/research/daily-indices

When last quarters falls annualized are at a higher rate than the yearly falls, I think you would be hard pressed to say that the property market is stabilizing.

I would wait till the last quarters falls annualized are less than the years falls, then take your time looking to establish fair value, then start making low ball offers.

But each to their own. Some like to catch falling knives.

As Marisa says, if the pound picks up while you are in Oz, the fx could be a killer. Might be better to wait till after brexit, although god only knows when that could be.

 

Edited April 11, 2019 by newjez

[can1983]

3 hours ago, SusieRoo said:

I wouldn't kick yourself too hard as you may be able to get that unit for $500,000 or less by the end of the year.

Yeah agreed, if its on for 700 doesn't mean it will sell for that. but wow a unit for 700k that's the same as my 4 bed house near the beach in Tassie and the weather is about the same...... Victoria is over-rated

[Marisawright]

4 hours ago, SusieRoo said:

I wouldn't kick yourself too hard as you may be able to get that unit for $500,000 or less by the end of the year.

No, I don't think so.   The auction clearance rate last week was back up to normal.

[Marisawright]

1 hour ago, can1983 said:

Yeah agreed, if its on for 700 doesn't mean it will sell for that. but wow a unit for 700k that's the same as my 4 bed house near the beach in Tassie and the weather is about the same...... Victoria is over-rated

The same unit in a similar suburb in Sydney would sell for over $900,000.

However, I've seen similar units in Hobart sell for the same price as the Melbourne one!

[can1983]

15 minutes ago, Marisawright said:

The same unit in a similar suburb in Sydney would sell for over $900,000.

However, I've seen similar units in Hobart sell for the same price as the Melbourne one!

Units prices in Hobart are dumb for sure. I'm amazed anyone wants to live in a unit in Tasmania.....

[Marisawright]

21 minutes ago, can1983 said:

Units prices in Hobart are dumb for sure. I'm amazed anyone wants to live in a unit in Tasmania.....

Not everyone likes a country lifestyle.  We did consider moving to Tasmania because we prefer the cooler weather and the house prices are lower. But I've tried living in the country and it's not for me.  I want to live where I can step outside my front door and walk to a good selection of cafés, shops, cinema etc.  

[Melbpom]

13 hours ago, Marisawright said:

One point worth noting is that it's not a "normal" falling market.  Melbourne house prices went ballistic about two years ago.  Although people are getting their knickers in a knot about the current drop, prices are still higher today than they were two years ago!   For instance, shortly after we arrived, we almost bought a unit for $650,000.   We didn't (still kicking myself).  Another unit in the same block is now on sale for $700,000, even though prices have dropped back in the last few months. 

At the moment it seems that stock is low, who puts their property up for sale in a falling market. The only stock I can see are the ones that developers are passing by, i.e. it's not worth their time/money/risk to buy an older property on a large block and knock it down and build townhouses. Quality stock is scarce and I think that this is skewing the sold price trend downwards.

[can1983]

2 hours ago, Marisawright said:

Not everyone likes a country lifestyle.  We did consider moving to Tasmania because we prefer the cooler weather and the house prices are lower. But I've tried living in the country and it's not for me.  I want to live where I can step outside my front door and walk to a good selection of cafés, shops, cinema etc.  

Yeah but you don't need to live in a unit for that in Hobart. I live in Kingston Beach and within 10 minutes walk we have 5-6 options at the beach and 10 or so options at the town centre..

[Marisawright]

26 minutes ago, can1983 said:

Yeah but you don't need to live in a unit for that in Hobart. I live in Kingston Beach and within 10 minutes walk we have 5-6 options at the beach and 10 or so options at the town centre..

Yes, but the town centre is too far away from Kingston.  Been there, checked it out. Kingston has a beach, cafes and a suburban shopping centre, not my idea of the big smoke.   I'm an inner-city girl.

Edited April 12, 2019 by Marisawright

[SusieRoo]

8 hours ago, Marisawright said:

No, I don't think so.   The auction clearance rate last week was back up to normal.

There is evidence to show auction clearance rates are now being manipulated. I was at an auction in Queensland a few weeks ago with no bidders, but that auction result never made it onto the monthly report. I understand this is now common place as it's the agents who input the data and the agent get to choose what gets reported. Same reason why turkeys don't vote for Christmas.

[le petit roi]

I've been to 4 auctions in recent weeks and my anecdotal evidence is that our old friend the 'vendor bid' is bidding harder than the attending crowds.

1 sold as a genuine auction result, 3 were passed in after 20 minutes of the auctioneer talking to himself before receiving solo bids. These properties appeared as 'sold at auction' in the newspaper which is misleading because it can only be as a result of post-auction negotiation not the auction itself. Caveat emptor, 'Sold at auction' comes in many guises.

[Paul1Perth]

Do you intend to emigrate and stay in Aus? If so I would sell up and use your cash to get set up here. 

Carefully choose where you want to live though and pick a house you are going to be happy in. If you nearly pay for it outright and you enjoy where you live that's the main thing. 

Property prices have always fluctuated but as long as you're not in negative equity, can afford to have a decent life with meals out and a few holidays then you stop worrying about house prices.