Does a 3-year lending high signal the return of property investors?

australian-suburban-street

For the past year attention has largely been focused on the owner occupier segment of the Australian property market - particularly on first time buyers who have proved particularly enthusiastic about entering the market.

New lending data released by the Australian Bureau of Statistics last week points to a steady re-emergence of investors though, with seasonally-adjusted investment loan commitments hitting $6.9 billion in February.

This is the highest level of new investor borrowing since February 2018 and it marks a 70% increase compared to May last year when loan commitments were at their lowest.

However, the ABS lending figures show that investors are still being dwarfed by owner occupiers when it comes to borrowing, as owner occupiers took out $21.7 billion of the $28.6 billion worth of new loan commitments made in February.

And Dr Andrew Wilson, Chief Economist at property technology company Archistar, says that the current share of investor borrowing still remains well below peak levels.

“Despite recent growth, investor lending remains subdued, accounting for just 20.25% of total home lending and remarkably still below the 20.4% market share for first home buyers,” he said.

“The average long-term residential loan market share for investors is 33.3% with the February total still 31.0% lower than the record $10.1 billion approved over April 2015 during similar strong market conditions.”

The state of investor rates

According to Dr Wilson, finance constraints are among the ‘significant barriers’ holding back investor activity at present, with one such restraint being the interest rate premium paid by investors compared to owner occupiers.

So how do home loan interest rates for investors compare?

Here are the average variable rates^ for different borrower types in the Mozo database as of April 8, 2021.

Owner occupierInvestorDifference
Principal and interest repayments3.30%3.69%39 basis points
Interest only repayments3.80%3.92%12 basis points

While these differences may look relatively small, over the long run even a minor variation in rates could have a significant impact on the total amount paid by a borrower.

For instance, using our home loan repayments calculator shows that on a mortgage of $400,000 being paid off over 25 years, the difference between a rate of 3.30% and 3.69% equates to $25,091 in extra interest.

However, it’s worth noting that - as the table below shows - the ‘rate premium’ paid by investors narrows when the lowest variable rates^ in the Mozo database for different borrower types are compared.

Owner occupierInvestorDifference
Principal and interest repayments1.99% (2.05% comparison rate*) - Reduce Home Loans Super Saver Variable2.24% (2.30% comparison rate*) - Well Home Loans Well Balanced25 basis points
Interest only repayments2.47% (2.47% comparison rate*) - FreedomLend Variable Home Loan2.49% (2.55% comparison rate*) - Well Home Loans Well Balanced2 basis points

RELATED: Hobart and Sydney markets lead the way as property values climb higher in March

Ready to make an investment move of your own? You’ll want to find a home loan to suit your needs, so get started by checking out some of the hot offers below, or head on over to our home loan comparison tables to browse even more offers from a greater range of lenders. 

^Variable interest rates are based on a loan size of $400,000 and a standard loan-to-value ratio (LVR) of 80%, accurate as of April 8, 2021.

Compare investment home loans - last updated 6 August 2022

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    Investor, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    3.89% p.a. variable
    4.31% p.a.

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    Investment, Refinance Only

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    Initial monthly repayment
    3.44% p.a. variable
    3.36% p.a.

    For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

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  • PAYG Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    3.29% p.a. variable
    3.33% p.a.

    Low variable rate. Ideal for new home buyers or refinancers. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

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  • Discounted Home Value Loan

    Investment, Principal & Interest, LVR <70%

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    3.42% p.a. variable
    3.43% p.a.

    Competitive variable Investor rate. Unlimited extra repayments for free. Enjoy the flexibility to redraw additional payments at no charge. Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must apply by 31 August 2022 and settle by 31 October 2022

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  • PAYG Investor Loan

    Investment, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    3.64% p.a. variable
    3.68% p.a.

    Low variable rate. Ideal for investors buying or refinancing. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

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  • Smart Home Loan

    Investor, Interest Only

    interest rate
    comparison rate
    Initial monthly repayment
    4.74% p.a. variable
    4.76% p.a.

    A low-rate home loan that could save you thousands. No application or ongoing fees. Unlimited additional repayments. Unlimited free redraws with no minimum redraw amount, Limited time only.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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