Investor surge risks "financial vulnerabilities," RBA cautions

Property investors are keeping the Reserve Bank (RBA) on alert, with the central bank warning that rising investor activity may add volatility to home prices and the wider housing market, realestate.com.au reported.

In its latest Financial Stability Review, released twice a year, RBA said: “A sharp rise of investor activity from already elevated levels could lead to a build-up in financial vulnerabilities if it significantly amplifies the housing credit and price cycle.”

RBA has cut interest rates three times this year – a move that has enticed property investors back into the market.

Investor lending and market momentum

Growth in investor housing lending has increased over the past year and now sits above its post-Global Financial Crisis average, RBA noted.

ABS data show new property investor loan commitments rose 3.5% during the June quarter and were up 0.8% year-on-year.

Investor demand is also reflected in sentiment surveys. A Mortgage Choice poll from the June quarter found that 45% of buyers looking to purchase a subsequent property were planning to buy an investment property, up from 42% the prior quarter.

Meanwhile, national home prices grew 6.2% over the year to September, adding around $54,100 to the value of the median home. Over the past five years, prices have surged 50.6%, according to PropTrack’s Home Price Index.

“Looking ahead, this year’s series of interest rate cuts, improved sentiment and the October expansion of the Home Guarantee Scheme will add support,” REA Group senior economist Eleanor Creagh (pictured) said. “With stock on market constrained and new supply challenged, demand-side stimulus will intensify competition.”

Risks of investor-driven cycles

RBA noted that while investor lending historically carries relatively low default risk, it often drives price swings more than owner-occupier activity.

“Investors might be more likely to sell their investment property if they expect prices to fall because many properties incur carrying costs (net of rental income) and because it is an investment rather than their principal place of residence,” the review said.

Periods of rapidly rising home prices can also encourage more investors into the market, RBA warned. A high concentration of investors can therefore amplify housing cycles, raising the risk of sharp corrections that could erode household equity buffers and spill into the wider economy.

For now, the central bank said housing vulnerabilities remain contained.

Policy and rate outlook

RBA left the cash rate on hold at 3.6% last week in a widely expected move, disappointing mortgage borrowers who had anticipated further cuts.

In recent updates, major bank economists have pushed back expectations for the next cut: ANZ and CBA now point to February 2026, NAB to May 2026, while Westpac remains an outlier, flagging multiple cuts starting in November but noting a November move is “far from assured.”

Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.