When The Mortgage Bites

Chained to the repayment wheel? Here are some options for downsizing your home loan.

After 11 interest-rate rises in a row and possibly more on the way, the Reserve Bank has managed to grab more than just the attention of politicians and market analysts.

With official rates at their highest in 12 years, home owners in Sydney are doing their sums.

And so they should. More than 4000 people in NSW are on three-year, fixed-rate mortgages due to expire this year. They face up to six interest-rate rises at once.

Figures from financial research service Cannex show the three-year fixed loan in February 2005 was set at 6.83 per cent. It is now 8.47 per cent. And with more rises expected as early as next month, home owners would be wise to reassess their finances.

The general manager of Australian Property Monitors, Michael McNamara, says: "If you are under mortgage stress and live in an area like Sydney's south-west, where the property market is weak, you don't have any choice: you either wave the white flag or have your property forcibly removed from you.

"But the eastern suburbs, North Shore and inner west are not weak markets. Some of those suburbs have been experiencing double-digit growth. People under mortgage stress in those suburbs have options right now."

These options include selling when the market is strong and buying in a neighbouring suburb that has similar housing for less money.

"Consolidating your home loan makes sense for people who have overborrowed," says the head of Aussie Home Loans, John Symond. "That way you reduce your mortgage stress and still manage to buy within a reasonable distance from where you live. That appeals to many people because we are territorial by nature."

The chief executive of McGrath Estate Agents, John McGrath, says people who are thinking of selling up to buy a more affordable property nearby need to weigh up the costs associated with the transaction by ensuring there is a good 20 per cent difference between the house values to justify the costs of selling, buying, moving and stamp duty.

"If you are selling for $900,000 and buying at $650,000 then that's going to pay off for you," McGrath says.

McGrath cites the $341,000 difference between median house values of Ryde ($627,000) and Lane Cove West ($968,000) next door. With that in mind, Domain asked Australian Property Monitors to identify the five cheapest suburbs in some of Sydney's best performing regions.

CITY AND EAST

1 Waterloo - $472,000

2 Ultimo - $490,000

3 Zetland - $520,000

4 Darlington - $541,000

5 Hillsdale - $590,000

It might have the lowest median house price in the eastern suburbs but Waterloo, with its Danks Street shops and cafes, has a lot to offer the right buyer, McNamara says.

"It's a hop, skip and a jump to Moore Park and Fox Studios, the accessibility to the city is fantastic and it is en route to the airport."

However, like nearby Zetland, "both suburbs have suffered from their history as an industrial hub". Unlike Botany (with a $600,000 median house price), which is only a couple of kilometres further south.

If you want a family-sized home though, consider Hillsdale. Inland from the surf at Maroubra (with an $810,000 median), Hillsdale is near Eastlakes ($660,000) and neighbours Pagewood ($760,000).

"For buyers who are willing to forgo proximity to the surf, those suburbs have a great deal of capital growth left in them," McNamara says.

In the inner city, Darlington suffers for being on the wrong side of Cleveland Street, he says. Chippendale ($600,000) has similar terraces and is equally close to the University of Sydney and Central Station but has a median house price $59,000 higher.

INNER WEST

1 Sydenham - $480,000

2 St Peters - $488,000

3 Tempe - $489,000

4 Beaconsfield - $513,000

5 Homebush West - $538,000

"St Peters is great value," McNamara says. "It is the immediate train station beyond Newtown ($636,000). It sits at the end of King Street, sandwiched between Tempe and Sydenham on one side, and Newtown and Marrickville ($560,000) on the other.

"Sydenham is another one that is extremely well located. The benefit that Sydenham has over its neighbours is it has a number of different train lines connecting to it from the south, the city and from Campbelltown."

The downside for both suburbs is aircraft noise.

For more spacious housing, Beaconsfield is an attractive option, especially given it is next to Alexandria ($642,000).

"The [$129,000] disparity between Beaconsfield and Alexandria is probably unwarranted given that they both have such good access to the eastern suburbs," McNamara says.

For families looking to spread out, McNamara recommends Ashfield, with its $562,000 median house price.

"It has a mix of Federation and Californian bungalows, it has the wide, tree-lined streets, decent-sized blocks, big parks and access to good schools," he says.

NORTHERN BEACHES

1 Brookvale - $652,000

2 Scotland Island - $680,000

3 Narraweena - $680,000

4 North Narrabeen - $704,000

5 Dee Why - $705,000

Brookvale has the lowest housing median, thanks to its abundance of 1950s-style weatherboard homes and the big thoroughfares running through the suburb.

"But if you weigh that up against all the open space in Brookvale, fantastic access to public transport and being close to the sports stadium and Warringah Mall, then there is certainly good value in it," McNamara says.

Narraweena has better value though, he says. "It is sandwiched between Dee Why and Cromer ($708,000) at the east and Belrose ($775,000) and Beacon Hill ($740,000) in the west.

"Dee Why offers home owners a discount compared with its neighbours Curl Curl ($1,145,000) and Collaroy ($975,000), thanks to the large number of unit blocks between Warringah Road and the beach.

"But if you're prepared to sacrifice that streetscape or perhaps be overshadowed by a block of units, then you are living on the doorstep of one of Sydney's best beaches, with public transport and shopping up the road, for a very decent price."

NORTH-WEST

1 Northmead - $440,000

2 Rydalmere - $442,000

3 Dundas - $450,000

4 North Parramatta - $455,000

5 Winston Hills - $460,000

"When you look at Northmead and Rydalmere, these suburbs are extremely close to Parramatta, which is supposed to be Sydney's one true satellite city. What that offers is its own strong local economy," McNamara says.

"Rydalmere is towards the end of Victoria Road and was once considered the geographical heart of Sydney, so there's probably nowhere in Sydney that is too far away."

In the Hills District, Winston Hills could provide more capital return in the future and not only because it sits between Baulkham Hills ($490,000) and North Rocks ($550,000).

"If the rail link out to the Hills District goes ahead that would make those areas far more accessible. Already the orbital motorway has helped close the gap in terms of joining the Epping Tunnel and M7 to make the Hills a 30-minute drive to the city."

SOUTH AND SOUTH-WEST

1 Waterfall - $438,000

2 Kurnell - $445,000

3 Riverwood - $448,000

4 Narwee - $473,000

5 Sutherland - $478,000

"Waterfall has good access to the trains on the Illawarra line and is a family friendly neighbourhood," McNamara says.

Narwee has a cheaper median than many of its neighbours, such as Beverly Hills ($523,000), because it is nearer industry and aircraft noise.

"The good thing about Narwee is it is on the M5 and it has a train station in the suburb, so it has a few big pluses in terms of access.

"For a family friendly option Bardwell Park ($600,000) is good value," he says. "It's just on the other side of Earlwood ($605,000) and has plenty of generous homes and a village atmosphere."

JUST DOWN THE ROAD AND $100,000 CHEAPER

When Richard Carter, 47, and Melinda Robertson, 27, began house hunting more than a year ago, they had their eye on suburbs such as Erskineville and Newtown.

With about $450,000, they had a choice of enough houses on the market at that price. The problem was everything went under the hammer for up to $100,000 more than that. And so the couple, both of whom work for Film Australia as archivists, widened their search to include Tempe and St Peters.

After passing on a house in Tempe for being "just a little bit far out", Richard and Melinda bought their two-bedroom, full-brick semi in St Peters last September through Agency by Glenn Regan for $455,000.

"King Street is at the end of the street and we could move straight in and live in it as it was," Carter says. "Whereas everything we looked at in Newtown in this price range needed major work on it before you could move in."

What's more, with the Reserve Bank warning of further interest-rate rises to come, the couple fixed their loan for five years, securing a 7.2 per cent interest rate and bypassing the four interest-rate rises since.

HAVE YOU EVER CONSIDERED...

188 Windsor Road, Northmead $550,000

Three-bedroom Californian bungalow with in-ground pool on 1163 sq m.

Harcourts Forte, 0419 908 879

12 Frederick Street, St Peters $580,000+

Four-bedroom house with separate living spaces and study on 291 sq m, close to trains and shops.

Auction: March 8. McGrath Inner West, 0401 002 211

7 Rhodes Street, Hillsdale $699,000

Freestanding three-bedroom house on 600 sq m, five-minutes walk to Eastgardens.

LJ Hooker Maroubra, 0416 166 931

1 Alfred Street, Brookvale $850,000+

Four-bedroom red-brick house on 556 sq m elevated block overlooking Brookvale Oval.

Mackinnon Estate Agents, 0402 768 686