Investors being forced into principal and interest payments are set to “struggle” when their interest-only period expires, and selling may be their only option, according to new research.
According to a survey of 820 property investors from the Property Investment Professionals of Australia (PIPA), 13 per cent of interest-only borrowers were expecting to “struggle” when they begin repaying principal and interest, with a further 13 per cent “unsure” and 61 per cent confident in their ability to meet repayments.
Of those that said they would struggle to meet principal and interest repayments, 5.5 per cent said they have sold, or would have to sell, an investment property to meet loan commitments.
The results come amid concerns from the Reserve Bank of Australia (RBA) about the potential for some borrowers to fall into mortgage stress following the expiry of the interest-only period, with the bank claiming that such borrowers could pay an additional 30 to 40 per cent in repayments per year.
Additionally, the survey found that 48 per cent of investors said that changes to investor lending policies have impacted their ability to secure finance compared to 43 per cent when the survey was conducted last year.
These findings are line with research from homeloans.com.au, released yesterday, which indicate about 65 per cent of parents are dipping into their own retirement funds to help their children buy a home.
More broadly, the market for interest-only loans is becoming increasingly slimmer. Figures from the banking regulator, APRA, found that interest-only loan approvals plummeted by 55 per cent in the last quarter.
Investor home loan approvals also dropped by 12.4 per cent over the quarter, representing 31.1 per cent of new home loan approvals, a total of $117.5 billion.
Reporter, nestegg.com.au, 25 September 2018