Investor lending has dropped to record lows around the country, but about a third of property investors are watching rates closely in the hope of refinancing.

Investor lending dropped to 24 per cent in August, according to figures from the Australian Bureau of Statistics (ABS), a steep tumble from the decade average of 36 per cent.

All states are feeling the pain, but analysts believe the recovery will be a drawn out process for the nation’s largest two.

“… From an affordability and yield perspective, smaller capital city markets may see increasing popularity from investors in the coming months,” Eliza Owen said, head of research at CoreLogic.

“For the traditional investor markets, such as inner-city Sydney and Melbourne, COVID-19 has triggered a further retreat of investors that is likely to last until overseas migration and travel resumes.”

Investor lending has been trending downwards due to macroprudential measures introduced about five years ago in a bid to tame rising housing prices.

But the COVID-19 pandemic — ushering in sweeping changes to how people conduct business, socialise and go about their everyday lives — has made the fall sharper, analysts said.

Border lockdowns, instituted as a health measure to stop the spread of COVID-19, have all but stopped international students and other migrants from entering the country — eliminating a key cohort that would typically rent properties in Sydney and Melbourne.

“A year ago in August 2019, almost 55,000 students arrived in Australia to study,” Craig James said, chief economist at CommSec. “In August this year, 50 students came to Australia.”

A third of property investors want a better deal — likely from brokers

About 36 per cent of property investors — many containing multiple properties in their portfolio — are considering a bulk refinance if they find rates half a per cent lower than their existing loan, according to the Property Investment Professionals of Australia (PIPA).

The savings from lower rates would help free up cash flow for investors who have passed on discounts to renters, often leaving them out of pocket, Peter Koulizos said, chairman of PIPA.

“Investor and interest-only interest rates have reduced over recent times but are still significantly higher than owner occupier home loans,” he said.

“Many investors are also coming off fixed rates and are refinancing to obtain rates that are one or, sometimes, two percentage points lower than what they had been paying.”

The majority of investors relied on mortgage brokers to negotiate their loans. PIPA said about 71 per cent of its investors used a broker in the past, and that 80 per cent indicated they’d rely on mortgage brokers for their next purchase.

Investor rates have fractionally fallen over three months

In the last three months, 52 of the 123 lenders in the RateCity database have lowered their interest rates on investor loans by an average of 0.10 per cent.

The most competitive variable rate loan is being offered by Pacific Mortgage Group. They’re offering a principal-plus-interest loan at 2.49 per cent for both the advertised and comparison rate if borrowers can meet a loan-to-value ratio of 75 per cent.

The next variable rate loan following it is from Homestar Finance. Its principal-plus-interest loan offers a 2.49 per cent advertised rate with a comparison rate of 2.52 per cent, for loans below $850,000 where the loan-to-value ratio is 70 per cent.

Rents are recovering — except in two capital cities

Rents widely increased across the country over the September quarter, according to the experts at Domain, but two capital cities anchored the national average for unit rents.

Housing rents increased by 3.2 per cent on average over the same quarter a year earlier, according to Domain’s rental report, recovering from the losses incurred during the first COVID-19 lockdown in March.

But unit rents dropped on average across the country by 2.9 per cent, when compared to the same quarter a year earlier, despite all but two capital cities recording growth.

Drops of 4.8 per cent in Sydney and Melbourne were enough to offset any gains made across the country, largely due to the fall in international students, migrants and travellers.

“Inner-city areas … are more susceptible to changes in overseas migration and international students, tourism and job losses associated with COVID-19,” Dr Nicola Powell said, senior research analyst at Domain.

“Unit rents (in Sydney) have now fallen $55 a week from peak prices in 2017 and are now the lowest in six years.”

 

Tony Ibrahim, RateCity, 21 October 2020
https://www.ratecity.com.au/home-loans/mortgage-news/amid-record-low-lending-property-investors-look-bargain-loans