Investors shrug off rising interest rates as demand grows

“This is due to a faster rate on home loans and a reduction in owner-occupant loans, particularly for first-time buyers, which fell 29 percent over the past year, while investment loans they were up 56 percent,” says Lawless.

But investors as a proportion of the entire mortgage market remain below the decade-long average of about 35 percent, according to CoreLogic analysis.

Mortgage growth has slowed from a recent peak of 116 per cent for the 12 months to May, with demand strongest in NSW at over 38 per cent, followed by Queensland at 35 per cent.

“It’s surprising to see investors so focused on NSW, considering Sydney has the highest entry price, lowest yields and arguably less potential for medium-term capital gains,” says Lawless.

“I wouldn’t be surprised if more investors looked to markets like Brisbane, Adelaide and Perth, where purchase prices are lower, yields are higher and medium-term capital gains prospects are potentially higher. Regional commutable markets are also likely to be more popular with investors for the same reasons.”

mortgage loan premium

Investors will monitor whether the premium they pay compared to owner-occupants will increase after the cash rate increase.

Investors pay a 33 basis point premium on existing home loans and a 29 basis point premium on new loans, analysis from the Reserve Bank of Australia shows.

Apartments tend to be more popular with investors than houses, possibly because they tend to be cheaper, cost less to maintain, and offer higher returns compared to single-family homes.

The median price of a unit in the nation’s capitals is about 30 percent (or $294,000) lower than the median home price, according to CoreLogic. Gross rental yields of about 3.6 percent are more than 80 basis points higher than the gross yield on a home.

Residential rent increases as high as recent property price increases are attracting investors seeking higher yields, a hedge against inflation, and generous write-downs and tax breaks.

Home rentals in some of Australia’s capital cities have risen by 15-20 per cent in the last 12 months as supply failed to keep pace with a strong increase in demand, particularly in the regional capitals of higher density, according to SQM Research, which monitors the markets. .

Demand for rental housing is expected to rise this year due to a strengthening economy, relaxation of COVID-19 restrictions and the return of high levels of migration and students, says the National Housing Finance and Investment Corporation. , a group of government experts that monitors housing. demand, supply and affordability.

Confidence is also sustained by the absence of federal election policies that could lead to a cut in generous negative leverage allowances or depreciation allowances.

AMP Chief Economist Shane Oliver expects average residential property prices to fall 10 to 15 percent over the next 18 months, bringing average prices back to levels around April of the year. last. This makes a large increase in negative equity unlikely.

According to RBA analysis, “high-end” property markets with higher concentrations of investors are more sensitive to changes in short-term interest rates.

“This may be why the Sydney and Melbourne markets are already experiencing price declines, with more affordable housing markets expected to eventually follow the downward trend,” says CoreLogic’s Lawless.

But brokers say there has been a decoupling of the high-end market from other sectors, with single-digit rate increases unlikely to affect pricing or billing.

“Demand is very strong and not subject to ups and downs in interest rates,” says Antoinette Nido, a real estate agent with RT Edgar. “A rate increase would mean a return to a more normal market.”

Emma Bloom, a buyers agent who also specializes in high-end properties, says: “There’s a lot of demand, but there’s not a lot of supply yet. Most blue-chip companies pay cash, so raising interest rates will have little impact.”

Patrick Bright, a buying agent who specializes in Sydney’s $2 million to $10 million mid-tier markets, says: “You’d have to be under a rock not to know rates are going to go up. Market activity is already slowing down, there is much less heat than before.”

Cate Bakos, Buyer’s Agent in Melbourne’s mid-tier markets of around $1m to $5m, adds: “Many investors are more interested in the impact on their borrowing capacity than the cost of lifetime”.

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