Sign Up
..... Connect Australia with the world.
Categories

Posted: 2021-12-02 05:14:48

Property investors are going on a borrowing spree not seen in years, even as the last sub-2 per cent mortgage rate from a big bank disappears.

Australian Bureau of Statistics lending finance figures for October showed a fall in home loan demand overall, but property investor loan commitments rose 1.1 per cent.

The value of newly approved investor loans in October was 90 per cent higher than a year ago, and the head of finance and wealth at the ABS, Katherine Keenan, said it was now close to record levels.

"The value of new loan commitments for investor housing has grown for 12 consecutive months, reaching $9.7 billion in October 2021," she observed.

New loan approvals fell in October for owner-occupiers but rose for investors.
New loan approvals fell in October for owner-occupiers but rose for investors.(Supplied: ABS)

Investor activity increased the most in South Australia (+15 per cent), Queensland (+8.9 per cent to a record high of $2.1 billion), and the Northern Territory (+78.7 per cent, but it is volatile because of a small population).

"Strong net interstate flows into Queensland are supporting the housing market in this state," wrote CBA economists Kristina Clifton and Belinda Allen.

A poster at an NAB branch advertises a 1.89pc two-year fixed rate with a house in the image.
NAB had the last remaining big bank mortgage rate below 2 per cent, but it has now gone.(ABC News: John Gunn)

Victoria and the ACT were the two states on the nose with investors in October, with both recording a fall in new lending to that group.

However, Victoria saw a slight increase in owner-occupier loans, along with Tasmania and the Northern Territory. New South Wales (-8.4 per cent) had the biggest fall in owner-occupier loans.

Nationally, it was first home buyers being displaced from the market as investor lending climbed.

"First home buyers numbers continue to drop for the ninth month in a row, down 30 per cent from the peak in January of this year on the back of surging property prices and escalating interest from investors," said RateCity's research director Sally Tindall.

Sally Tindall, RateCity
Sally Tindall says fixed rates below 2 per cent are "fast disappearing".(ABC News: Daniel Irvine )

CBA's economists expect the decline in owner-occupier demand to continue.

"Higher fixed mortgage interest rates, APRA's lift in the minimum serviceability buffer and affordability constraints are likely to see lending continue to drift lower," CBA's economists explained.

"Lending is a good leading indicator of dwelling prices and we expect dwelling price growth to slow in 2022 and for prices to fall in 2023."

No more big bank sub-2 per cent loans

NAB on Thursday closed the door on the major banks offering sub-2 per cent mortgages through their main brands.

It raised its fixed rates for the third time in less than six weeks, with some mortgages going up by 0.5 of a percentage point.

That saw NAB's cheapest one-year fixed mortgage rise from 1.99 per cent to 2.49 per cent.

The one-year fixed rate was playing some catch up to longer-term fixed mortgages, which NAB had already increased twice over recent weeks.

The move leaves the lowest one and two-year big bank fixed mortgage rates at 2.24 per cent.

RateCity's Sally Tindall said the major banks had "succumbed to funding pressures" as market interest rates rose sharply globally over recent months.

She said she did not expect that trend to stop.

"When people go to re-fix their loan in one or two years' time they could find the majority of rates start with a '3'," she warned.

There are still sub-2 per cent rates available with a couple of the big banks' offshoot brands and many of the smaller banks and credit unions, according to Rate City.

The lowest of these is a 1.59 per cent one-year fixed rate, and there are still two- and three-year fixed rates available below 2 per cent, while the lowest variable rate is currently 1.77 per cent.

But Ms Tindall said smaller banks' fixed rates were also on the way up.

"The number of fixed rates under 2 per cent is fast disappearing," she said.

"Six months ago, there were 166 fixed rates starting with a '1', and now there are just 78, and the exodus is far from over."

Property investor premium

The same trend applies to investor loans, with many more fixed rates rising than falling.

A for lease sign outside a federation era house.
Property investors, on average, are paying interest rates 0.34 of a percentage higher than owner-occupiers.(ABC News: Daniel Irvine)

Ms Tindall noted that investor loans also face additional pressures from the banking regulator.

"Investors have paid a premium for their mortgages since mid-2015. This came on the back of APRA's introduction of a cap on growth in investor lending in December 2014 and the release of the Financial System Inquiry's Final Report, which flagged a requirement for banks to hold more capital," she observed.

"Right now, according to RBA data, the average new owner-occupier is paying 0.34 percentage points less than the average new investor.

"When looking at fixed rates of three years or less, this gap is slightly larger (40 basis points) and smaller when looking at variable (27 basis points).

"The gap between owner-occupier and investor rates is unlikely to narrow any time soon after APRA announced on Monday banks would be required to hold more capital for riskier types of loan, including investor loans from 2023.

"While the banks have been charging their customers a premium for investor loans for the last six years, we could see some banks lift investor rates further in the lead up to this 2023 change."

View More
  • 0 Comment(s)
Captcha Challenge
Reload Image
Type in the verification code above