A major aggregator has witnessed a record high number of investor home loans during March.
Two in five new home loans last month processed by AFG last month were for investors – the highest amount the company has recorded in the seven years it has been reporting mortgage data.
A total of 3,384 loans with a total value of $1.6 billion were processed for investors during March by AFG, which has 11% of the total mortgage market in Australia according to ABS statistics.
The company says its figures are indicative of the whole mortgage market.
Investment activity varied from state to state –investors accounted for 49% of all new home loans in NSW, 37% for Queensland and Victoria and 32% for South Australia and Western Australia.
So-called ‘mum and dad’ investors have been taking advantage of the equity in their existing properties and the low rate environment over the past 12 months to build their property portfolio, AFG general manager Mark Hewitt said.
The Reserve Bank of Australia’s decision yesterday to hold the record low cash rate for yet another month will be a further boon to these investors.
Hewitt told Australian Broker
even if the RBA
raises the cash rate in coming months, as many economists predict, it will not have as big an impact on investors as it would on those already hardest hit – first home buyers.
“Because we have negative gearing [investors] can claim between the cost of their investment loan and the revenue they derive from it so there’s a bit of a natural hedge. The interest is tax deductible, essentially, and doesn’t have such a big impact on investors as it does on owner-occupiers where there’s no tax deductibility.”
Fixed rate loans are less popular than they have been for most of the past year - 23.9% of mortgages processed in March, down from 25% in February and a peak of 30.7% in April 2013 – which suggests borrowers are less concerned about the prospect of potential rate rises, he said.
“What normally happens when the Reserve Bank indicates interest rates are on the way up is that has an impact on fixed rate loans well before the rates go up. So the market tends to react before the variable rate rises.
“What’s interesting at the moment is the Reserve Bank in its last board meeting indicated the next rise may be upwards. But that didn’t actually impact fixed rates – the banks actually came down a little bit, which is contrary to anything they’ve done in the past.”
While Hewitt cannot predict whether investor home loans will continue to rise or fall, he said the concerning factor in the market now is the lack of housing stock to buy.
“The other thing that worries me with the market in general, is that first home buyers are at very low rates nationally. So when there’s no first home buyers, when existing first home buyers are looking to upgrade there’s no-one there to stimulate the market.”
AFG would prefer to see more of a balance between investors and owner-occupiers, Hewitt said.
“Especially first home buyers, that’s the area we need for a healthy market. It’s property in the hands of few people at this stage.”
The AFG data showed loan to value ratios remained steady at 68% nationally – the level is has held for much of the past year.
Total loans processed by AFG in March were $4,048 billion– the company’s second biggest month since last October, when it processed $4,057 billion.
A recent influx of overseas buyers is also contributing to a rising investor market, according to the Australian Foreign Investment Review Board.
Its 2012/13 report showed approved foreign investment in Australian residential property totalled $51.9 billion and exceeded off shore investment in the resources sector.
Chinese were the dominant foreign investors, with investment bank Credit Suisse predicting Australian property purchases by this nationality will total $44 million over the next seven years.
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