Return of the investors – Why investor lending is back on the up

Oct 2023Karen Millers

Residential property investors are making a welcome return to the market, and it’s a shot in the arm for brokers after a challenging FY23. It’s a fast-growing segment, with Resimac having seen significant month-on-month increases in its investor loan activity since July 2023.

Strong rental yields are driving a sharp uptick in purchases and, after multiple rate hikes, investors are also looking to improve cash flow by refinancing. It’s a markedly different lending environment, but what hasn’t changed is Resimac’s aptitude for developing lending solutions that address the unique needs and challenges of its target niches.

Investors get the benefit of flexible credit policies that can help to improve their serviceability, and for a limited time only, eligible investors can get the same low rates as owner-occupiers on particular products.

It’s been a topsy-turvy few years for property investment in Australia, with heady heights and dolorous downturns shifting investor appetite rapidly. While property investment was booming in the first few years of the 2020s amid record-low interest rates, things started changing rapidly in 2022 when rates started to rise once more.

Between January 2022 and January 2023, investor lending plummeted in the three most expensive states (NSW, Victoria and Queensland) as the cost of mortgages started to bite. Like the owner-occupied market, refinancing activity in the investor space has been high as these borrowers looked to save. It was 27 per cent higher in August 2023 than it was the year before at around $7 billion.

But economists are now anticipating a surge in investment property purchases. So what’s changed?

The most recent CoreLogic data indicates there has already been a rise in investment transactions this year, and these expectations are gaining momentum into 2024 as cash rate forecasts by major banks have signalled a potential conclusion to the rate hikes.

As such, there are mounting expectations that the stabilisation of the cash rate – and growing expectations that rates might start reducing by early next year – that are contributing to positive market sentiment.

Demand for new investor loans is already starting to tick back up again after a lull. Investors currently make up about a third of new mortgages, according to the Australian Bureau of Statistics (ABS). A total of $8.6 billion of new investor loans were written in July 2023 (the most recent data available from the ABS), which is the largest amount for nearly a year. While this is below the peaks written in the property boom of 2021 and 2022, it’s currently hovering around pre-pandemic peaks.

Meanwhile, the latest survey conducted by Property Investment Professionals of Australia found that 31 per cent of respondents expressed interest in purchasing an investment property in the next six to 12 months.

Speaking to The Adviser about rising investor activity, Resimac’s general manager of distribution, Chris Paterson, highlighted that “high rental demand has been encouraging more investors pursue property opportunities that offer strong returns.”

Indeed, rents have been ticking up for 35 months in a row, with CoreLogic estimating that rents had increased by 29.3 per cent since a low in August 2020 (during lockdowns). This is the equivalent of a rise in median weekly rents of $134.

While some of the increase in rents has been down to investors needing to pass on the cost of their mortgages as rates rise, the lack of rental stock on market has also resulted in renters offering more to landlords to outprice the competition. And as more immigrants and international students return to Australia, the attraction of being an investor landlord is growing.

“The property market isn’t as active as it has been, but that’s slowly turning,” Mr Paterson told The Adviser.

“Because supply is lower at the moment, investors have been considering properties in alternative areas, but there are pockets that are faring particularly strongly and growing quicker than others,” he continued.

Which states are seeing strong investor activity?

Queensland and the Northern Territory in particular have seen a resurgence in investor activity, according to the ABS. New housing investment loans in Queensland rose 6.8 per cent to $1.9 billion in July 2023, or a whopping 31 per cent since February 2023.

This can partly be attributed to the Queensland state government scrapping its controversial land tax changes, which encouraged investors back into market in November 2022 after they fled en masse.

Moreover, Queensland has seen its population grow 2.3 per cent in a year, the third-fastest increase behind Western Australia and Victoria.

The investor opportunity

Lenders such as Resimac have been quick to help support investors in accessing the finance needed to purchase their next investment.

Established in 1985, Resimac has been through numerous financial cycles. This depth of experience has informed several changes it has made to help investors with their current lending challenges. Earlier this year, Resimac lowered its serviceability buffer to 2 per cent to help more borrowers access funding and overcome the serviceability barrier, for example.

Mr Paterson also flagged that Resimac dropped its rental shading from 20 per cent to 10 per cent and has a current promotion offering investor rates that are aligned to owner-occupier rates, providing an additional point of difference.

The general manager of distribution commented: “In an increasing rate market, brokers and borrowers are looking for help with repayments and affordability. Property investors in particular have had it tough, as their rates are generally higher than owner-occupiers. We wanted to support our broker partners with a tailored solution, prompting our current special that offers investors the same rates as owner-occupiers, and P&I pricing on interest-only loans.

“Based on the servicing problems being felt across the board, there are also many clients who may not be able to meet the loan serviceability requirements of lenders. We were one of the first to address this by reducing our servicing buffer. This, along with other changes we’ve made to help support borrowers, is why brokers need to consider alternative options to find solutions for their clients.”

Mr Paterson concluded: “It’s important that brokers have broad consideration of their client’s requirements and objectives and look at the full picture: income received from their employment, income received from their rental property and other investment opportunities, to come up with an overall solution for the customer.

“And, by working with a lender that understands the investor market, brokers will get the support they need to ensure their clients are well looked after now and into the future.”

Originally Published: Sponsored by Resimac | Annie Kane | The Adviser | 6 October 2023

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