$2m+ Properties how are they funded?

For a couple on a combined income of say $250k, it seems reasonable to make repayments on say a $1.6m loan. With a 400k deposit for a $2m house.

But how common are such large loans? I thought I read somewhere here than $1m+ loans are not that common in the first place. Not sure if that is correct, but that would imply people buying 2m+ properties would be buying with ~50% deposit?

 

Hint: most people don't pay $2m+ for their first home, they are generally upgraders or beneficiaries.

 

Pretty common in sydney

 

The people buying 2m homes probably sold a 1. something m home that they bought for 600, 700k in the last cycle. Probably paid off most of the old loan. So they go in with 50, 60% deposit.

most wouldnt be on 250k+ incomes. But they will be older, probably 40s at least.

 

Most people buying 2m ppors can afford more and not scraping every dollar to pay deposit/mortgage,

2m PPORs usually come with a certain lifestyle as well

 

So do $200,000 ppors, they're miles apart.

 

thats exactly my point

 

My first place 2005, basic 2br unit 252k. Sold 365k in about 2010.

Second place 2008, 3br house, 695k with partner. Took out 500k loan because it had a lower interest rate than smaller borrowings but partner had cash to reduce the loan to about 400k. Sold 2016 1.345m, we had aggressively paid it down so when we sold we had an outstanding debt of only about 80k.

Third place bought end of 2015, amazing 4 br house, 1.6m. Worth around 2mil now. We took out a 1.2mil loan on it but paid most of that back to the bank once we got the proceeds from the second place.

Incomes tend to grow over time. Combined income over 250k. Also paying down so much of the 695k property gave us the ability to buy this 1.6mil place. We would have happily kept living at the second place but we saw this place. Note also, there's about 80k of stamp duty and purchasing costs that was paid in buying this place.

With the old place, we had around 30k of selling fees to the agent to sell it. Plus before the sale we spent a few thousand. This was to tidy up the garden, repair the outdoor patio, have the house painted another colour, have the roof cleaned using a guy with a karcher, put in a bigger skylight for the kitchen, removed the carpets and varnished the floors and staged the property.

Some people inherit their houses, some upgrade and some people bring money in from overseas. I think in the last few years quite a few homes sold in my area were to Chinese people bringing money in from overseas. Felt like all the house sales went to Chinese. Our old home sold to a Chinese couple moving from the Hurstville area.

In case anybody is wondering, I have Chinese heritage. Parents and grandparents all originated from China.
Chinese people want to live somewhere where there is a Chinese community, and in a nice area, good schools, good transport.
Anyway, Chinese demand pushed up local prices, which forces the prices up all around.

 

It seems reasonably easy to make repayments on a combined 200k+ salary for a 2m property. With 20-30% deposit.

Re the lifestyle statement do you mean things like close to the beach, large block etc? Does that relate to funding the property?

 

at current historically low interest rates, yes........

Ppor is worst cashflow wise up front (but with a tax free kick at the end).

 

Loans >$1M are not uncommon
Debt to income ratio is going to be high although not a deal breaker IMO
Don't forget to factor in stamp duty costs of approx $100K
Assuming you have no other debts and monthly expenses are not massive it's possible but best speak to a broker to see if you can service the debt, while you assume it's easy to afford the actual repayments it's not how banks calculate borrowing capacity.

 

So what are the risks of doing this?

2m ppor, 600k deposit. 1.5 loan. 200 combined (assuming even split 150k net a year).

repayments about 75k. 5k rates insurance.

if interest rates go up 2%, thats another 30k. Costs go to 110k or 70% of pay. If one person has an issue with the job, takes mat / pat leave, etc.

Also some who does this is less likely to be an experienced investor with other assets. Buffer is probably zero. The lifestyle of a family in a 2m home wont be cheap. 5 grand tvs, music lessons, leased bmw, eating out with friends, overseas holidays? Assuming thats what @TMNT is talking about.

long term probably ok but vulnerable to short term hits. Wouldnt describe this as comfortable.

 

Same risks that anyone has borrowing to the max.

There are tens of thousands of $2mil+ properties in Sydney and all have owners. Many people also earn $250k or more each....

 

There are plenty of transactions >$2m. Everything from being funded 100% in cash through to >80% LVR lends. Most that I see fit within 60-70% LVR as upgraders. Usually on considerably more than $250K HH income, I think that'd be a bit tight.

 

my point was that its fair to assume that someone buying a 2m PPOR wouldnt be living off 2 minute noodles , so they would be able to afford a decent lifestyle on top of mortgage repayments

 

If you were in HK. Even 20 years ago housing prices were stupidly high. Maybe you'd decide to buy a home, or maybe you wouldn't. At least in Australia you have other options. Nobody forces you to buy a $2mill home. Even in Sydney you can buy a $500k home instead.

As I said, I went from owning a basic unit to a house (nearly paid off) to an amazing home.

My younger sister went from a solidly good 3 bedroom townhouse, managed to pay that off quickly then bought a really nice house in the same suburb with hardly any debt. They bought the new house 2012, sold the townhouse 2014, and between 2012 and 2014 there was a massive boom in the Hills district of Sydney thanks to the new train line being built and the Sydney boom environment in general. (It helped that their townhouse was a really short walk ~500m to the new train station). In the end, the house was only 110k more than the townhouse they sold.

Going through the process of already having mortgages, paying off that debt quickly means they know how to own a more expensive home without being in difficulty. Same here. With our first house we paid it off much faster than required. Which gave us the ability to trade up.
Possibly some of the people with the biggest housing debts are the ones still paying off their first homes. The people who have paid off property/ies already are possibly in a better position to handle their debts.

 

It's up to the individual to determine their own risk profile and 'comfort' level.
Not everyone who has a $2M property leases a BMW & spends $9k per month...
$2M in Sydney doesn't get you much

 

Wow! Just wow... you are kidding right?!!!

Be careful tho ...I have friends who DID buy the 2M trophy Federation house...

Now they find themselves unable to retire...husband is late 50s...

To say they find themselves Embarrassed and Humiliated (their words not mine!) is an Understatement.

True story.

 

I think you are on the mark here. $2M isn't that hard from a PPOR upgrade or two over the years. A lot of people run full speed on the hedonic treadmill, keep upgrading to bigger and better. What is the origin of the word mortgage again...?

 

Forgot to add they were hoping to use their Superannuation (High Growth option ) to help pay off their mortgage...and we know what has happened!

Double whammy...2M ppor and govt pension beckons...

Wasn't what was expected when they bidded at auction.