A quarter of Australian properties are being bought for investment rather than to live in, and one top broker says this is a trend which will continue.
Over the last four years the number of investment property loans in Australia has grown by 37% compared to an increase of only 4% in the number of owner occupied loans, new data from Roy Morgan Research shows.
The growth in investment property loans over the last four years has come predominantly from the 35 to 64 age groups which account for 78% of the increase.
The study, which surveyed 45,455 Australians, showed while the proportion of over-50’s with an owner-occupied home loan has increased, the proportion of under-35’s with owner-occupied home loans decreased.
First Street Home Loan director Jeremy Fisher tells Australian Broker
he has seen a marked increase over the past three to six months where clients hold their current property and either upgrade to a new home or purchase an investment property, because interest rates have remained at record lows for an extended period of time.
“In the past, I was seeing more home owners sell and upgrade but with rates so low, the gap between mortgage repayments and rent received is minimal,” he says.
However, buying an investment property is not necessarily at the expense of owning a home.
“Many investors already own their home and are now beginning the investment journey. However, I have seen clients who feel like they are priced out of purchasing their home buy an investment property so they have a foot in the market for future capital growth,” he says.
Some borrowers are buying an investment property in a cheaper area, and then renting in a more expensive area where they like to live but cannot afford to buy, in a bid to get onto the property ladder.
“I am seeing this strategy and can understand why some clients will proceed down this path. The issue with this strategy is the longer the client remains out of the market they wish to be living in, the harder it will become to purchase in the desired market in the future,” Fisher says.
While there have been some government incentives for clients to purchase a brand new property to live in or as an investment, Fisher does not believe this has contributed to any increased growth.
“Given rates have remained at record lows for some time now, clients are becoming more and more confident in pursuing the investment purchase as the rental return comes close to covering the mortgage on day one.
“I am expecting a continued pattern of growth with existing home owners looking to further invest in the market and take advantage of built up equity in their homes whilst interest rates remain low.
Fisher does not belive recent government policy changes will impact the market.
“At this time, it doesn’t seem the recent Budget has had any impact or influence on the property market however with further policy changes on the cards, I will always suggest to my clients to remain on the side of cautious.”
But Roy Morgan communications director Norman Morris believes government policy is having an impact on loan types.
“Going forward, government policy and the economic climate will play a major role in whether people choose to invest in the property market or take out a home loan. Older Australians will face the prospect of cuts to pensions, and with the proposal for the pension age being increased to 70, this could impact the investment property market.
“Younger Australians may continue to find it difficult to enter the property market either for investment or owner-occupied because for both types they are competing with more cashed-up older property buyers.”
Data from Mortgage Choice also points to higher levels of investor loans, showing investors currently account for almost 30% of all home loans written.
Mortgage Choice spokesperson Jessica Darnbrough says it is unsurprising to see an increasing number of investors entering the property market given that interest rates are currently hovering around record lows and property prices are on the rise.
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