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While investor lending has been declining amid rising rates, new data shows a bounce-back in purchases, presenting new opportunities for the third party.
Amid a period of declining investor lending due to rising mortgage rates, the Australian housing market is witnessing a bounce-back in property purchases, presenting new opportunities for brokers.
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Recent data sourced from the Australian Bureau of Statistics and CoreLogic indicated that investor housing finance has already increased by 10 per cent since February 2023 when it hit its lowest point, CoreLogic’s Eliza Owen said.
“I think this could reflect an expectation that interest rates are at or near a peak, and that confidence may be buoyed by the recent bounce-back in capital growth,” she said.
Looking ahead, Ms Owen said better credit conditions will drive investor activity moving forward.
“If the cash rate falls in 2024, as each of the major banks are now predicting, we’ll probably see more investment housing purchases as a result,” she said.
“Investors are very responsive to strong capital growth conditions (investor activity rises as property values rise) and better credit conditions (investor activity rises when credit becomes cheaper and more accessible).”
While mortgage holders with investment properties have been able to recover some costs as rental values have skyrocketed, mortgage repayments have tended to outweigh the benefits.
CoreLogic estimated median rent values have increased $225 per month over the year to June. However, mortgage costs of a new investment loan are estimated to have increased by $948 per month on the median Australian dwelling value.
As such, if inflation winds back and interest rates are adjusted in 2024–25, Ms Owen said mortgage brokers may need “to brace for another surge in housing demand”.
“The supply-demand dynamic is pretty unbalanced as it is, and that may only be exacerbated by cheaper credit conditions next year,” she said.
“Beyond that, the prospect for capital gains is a little more uncertain, and the broker channel will probably be increasingly relied upon to assist new borrowers in years to come.
“Brokers have been such an important function in navigating the past few years of uncertainty and extreme fluctuations in interest rates.”
As the housing market experiences dynamic shifts, brokers are increasingly relied upon to help navigate through these complexities, providing valuable guidance and support for all parties involved, she added.
Worsening rental crisis
While factors affecting investment decisions have an impact on the rental market, several other key elements have contributed to the tightening rental situation.
Beginning in mid-2020, the rental market started to face mounting pressures due to a combination of factors, including investor uncertainty, rising interest rates, reduced sharing of housing, and higher income growth, Ms Owen explained.
“I believe at least some of the shortage in rental stock in recent years through the housing boom may have been investors cashing out at the peak of market conditions, recognising that the cash rate was unlikely to go back to 0.1 per cent any time soon after the pandemic,” Ms Owen said.
Notably, there is also evidence suggesting that temporary restrictions on investment lending by the Australian Prudential Regulation Authority (APRA) in late 2015 may have contributed to an uptick in rents over the year leading up to September 2017.
However, the underlying issue contributing to the rental crisis is the widely recognised housing supply shortage across Australia.
The scarcity of available rental properties has significantly impacted rental affordability, leading to significant rent increases.
According to CoreLogic’s latest rental report, national rents have surged by a staggering 27.4 per cent since the onset of the COVID-19 pandemic. As a result, the median dwelling rent across Australia has witnessed a notable $127 weekly increase.
Recognising the severity of the situation and its implications for households and the rental market, a new Senate inquiry has been launched.
The inquiry aims to investigate the actions taken by the government to reduce rent or limit rent increases. It will also assess the impact of rising rents on households and explore the various factors influencing supply and demand in the rental market.
[Related: Rental affordability under the spotlight]
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