Investor Lending

Home loans to property investors jumped for a third-straight month in April, rising at a faster pace than loans to owner-occupiers.

The value of new loans to investors rose 5.6% to $10.9 billion in April, to be up 36% compared with a year ago, according to the Australian Bureau of Statistics.

Part of that increase, according to the ABS, is an increase in the size of the average loan.

The average size of an investor loan for the purchase of an existing home grew almost 10% since April 2023, from $592,000 to $648,000.

The strongest markets were New South Wales (where investor lending increased 44%) and Queensland (where investor lending climbed about 46%).

The higher rate of investor activity comes at a time when rents continue to rise, underpinned by very low vacancy rates, to compensate (partly, at least) for higher interest rates, as well as higher council rates, higher insurance costs and higher maintenance costs.

Figures from property consultancy CoreLogic earlier this month showed rents recorded an annual rise of 9% in Sydney and 10% in Melbourne – which means rents in the two big cities are rising faster than prices at the moment.

The rate of price growth is higher in smaller capital cities like Brisbane, Adelaide and Perth, but rental increases are as high, or close to being as high, as the rise in sales prices in those cities.

CoreLogic research director Tim Lawless says: “For most investors, higher yields will be welcome considering variable interest rates for investor loans are averaging 6.7%.

“Given the high cost of debt, a large portion of leveraged investors are probably recording a cash flow loss despite the substantial rise in rental income.”

The increased activity from investors is welcome, after a period of being well below historical averages – which, in simple terms, is why we have a rental shortage, given that investors provide over 90% of the homes rented by tenants in this country.

The rise in buying activity by investors confirms the anecdotal evidence we have seen at Hotspotting.

Right from the start of 2024, we have observed that many investors started this year with intent – and are taking action.

This is desperately needed across Australia, as it’s the only way that the chronic shortage of rental homes will be improved.