Falling investor lending to put pressure on renters

The value of new investor home loans dropped sharply in June, which could pose a problem for tenants already house hunting in tight market.

According to the Australian Bureau of Statistics (ABS), new investor loans fell 6.3 per cent, to $10.48 billion, in just a month, driven by New South Wales (down 10.5 per cent), Victoria (down 3.4 per cent) and Western Australia (down 10.6 per cent).

Queensland, South Australia and the Australian Capital Territory also fell, however, both Tasmania and the Northern Territory saw small increases.

Atlas Property Group Director Lachlan Vidler said rising interest rates meant property investors were sitting on the sidelines.

“It’s clear that the rapid escalation in interest rates buffeted investor lending as well as confidence in May and June,” Mr Vidler said.

“Also, we have to recognise that since June, interest rates have been ramped up a further two times in successive months, so investor activity is even more subdued than this data-set reflects.”

Mr Vidler said investor activity had been below historical averages for a number of years – apart from in March and April this year – which was one of the predominant reasons for the critical rental undersupply currently occurring.

“Back in 2017, targeted lending restrictions were put in place that prevented investors from accessing lending, which resulted in the supply of rental properties starting to contract,” he said.

“Investor confidence only started to improve about a year ago, but now that rates are rising and borrowing capacity is being assessed at interest rates well above market projections, many are once again unable to secure finance.

“There does seem like an element of déjà vu to the current lending situation, which unfortunately is likely to intensify the demand and supply imbalance in rental markets around the nation.”

The ABS lending data showed investors comprised 33.8 per cent of mortgage demand by value, with a recent peak of 35.75 per cent recorded in April, and a record low of just 22.9 per cent during 2020.

The value of new loan commitments for all housing fell 4.4 per cent in June (seasonally adjusted) but remained at a historically elevated level of $31 billion.

Mr Vidler said with mortgage lending down across the board, savvy homebuyers and investors with the ability to still secure finance were in an enviable position compared to this time last year.

“The current market climate, with fewer buyers and more listings as well as reduced confidence levels, does remind me of the first year of the pandemic,” he said.

“The people who bought a property at that time were able to secure excellent results because they purchased at a time when many others were unable, or unwilling, to do so.

“Likewise, the current inflation pressures are worrying many people, but I believe that they will be shown to be temporary in nature, rather that permanent, in the months ahead.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.