Return of the investor: why the first home buyer window is closing

Return of the investor: why the first home buyer window is closing

In May last year, I predicted that it was the time for first home buyers to enter the market while investors were shying away. First home buyer grants and stamp duty exemptions set up around the time meant first home buyers had a leg up and in April, APRA introduced tight new restrictions on interest-only lending, which further complicated matters for investors.

But now the tables have turned. A number of factors have come together that mean investors are in a good position to come back to the market, and the window for first home buyers is closing. Here’s a few of the reasons I think investors may return as the driving force in the coming months, particularly in the Sydney and Melbourne markets:

APRA’s restrictive measures have run their course

In 2015, APRA introduced a 10% lending cap on new investor lending, which it has recently indicated may have run its course. This will give lenders more scope to take on investment borrowers.

APRA’s more recent regulations, including a 30% cap on new interest-only lending, however, don’t look to be going anywhere soon. Since it’s mainly investors who take on these loans, this may still have a limiting effect on the amount of investors entering the market.

Banks are loosening the interest-only noose

Having said that, many lenders also seem to have realised recently that they may have overreacted to APRA’s 30% interest-only lending limit and are well under the threshold. That means whether or not APRA lifts the restrictions, lenders are relatively safe to start enticing interest-only and investment borrowers again.

And they’ve already started doing so, by lowering rates on investment loans – Mozo has recorded more than double the amount of investment rate cuts over the past 3 months as rate increases. A number of lenders also raised investment loan LVRs making it easier for investors to borrow, for example CBA moved the LVR on its investment loans back to 90% from 80%.

Negative gearing tax returns will come in

When investors get their tax returns back this year, I think many of them may be pleasantly surprised by just how much they get back. Negative gearing means all these investors who were tightening the belt thanks to larger upfront costs in the way of higher interest on their mortgages will get a decent chunk of it back at the end of the financial year. This windfall will encourage investors to stay in the game and maybe even to buy a new property.

The upcoming election may bring changes to negative gearing

If Labour wins the next election and gets rid of negative gearing, then new property investors can say goodbye to those bumper tax returns. That’s a huge incentive for investors to hang onto their current properties, and buy another one before the new rules come into effect because their investments will be grandfathered, so they’ll still benefit from negative gearing. This could even create a mini-upsurge in investor activity, as buyers rush into the market before changes take place.

While I’m not expecting to see an investment boom as such, I do think investor interest will prop up demand enough that key markets in Sydney and Melbourne will remain steady, even as first home buyers drop out of the property race.

If you’re after an investment loan to pick up your next property, make sure you head over to our home loan comparison table to search for the right fit.

Return of the investor: why the first home buyer window is closing was last modified: March 12, 2018 by Steve Jovcevski

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