Investors now account for 36.1 per cent of all mortgage lending, which is higher than the decade average of 34 per cent.
Arjun Paliwal, head of research at buyers’ agency InvestorKit, said investor numbers had been increasing in the past year despite higher interest rates.
“It’s clear that investors anticipate rates will come down at some point this year or next year,” Mr Paliwal said.
“They’ve also come to learn that in a high interest rate environment, property markets did not decline the way they thought they would. So as a result investors are coming back, and they’re not only handling higher mortgage costs, they are thriving in it.”
However, fears of another interest rate rise could dissuade some home buyers and investors who were hoping for interest rate cuts this year, AMP chief economist Shane Oliver said.
“Rising interest rates would be a negative on the property market, and could turn property prices back down,” he said.
“The other thing is if you have one rate rise, people will be speculating on the next one, and the next one, so the sentiment would turn a lot more negative for the property market.
“It’s quite possible investors will lose interest. Some may conclude that there’s no hurry to buy now.”
Even a long delay in interest rate cuts would have negative consequences, Dr Oliver said.
“I suspect that the delay in interest rate cuts will dampen demand, at the same time, the longer we delay rate cuts, the greater chance we will see an increase in distressed sales,” he said.
“The big problem for investors is the interest rate and yield comparison remains very unfavourable, so there’s probably more cash flow problems for investors at a time when the prospects for capital growth aren’t as strong as they were a year ago.”
The average variable mortgage rates for investors are sitting at 6.53 per cent compared to 3.8 per cent gross rental yield nationwide according to CoreLogic.
Tim Lawless, CoreLogic research director, said the sharp rise in asking rents has not been able to cover the increases in mortgage costs.
“Rental yields are starting to pick up now because rents are rising faster than home values once again, but they are still quite low, particularly across markets like Sydney and Melbourne,” Mr Lawless said.
“I think for investors, servicing their debt and making sure they have sufficient cash flow to service it, at least until they get some tax refund, that’s probably going to be the hardest part of holding an asset.”
Monthly mortgage repayments have jumped by 60 per cent, or $1612, since April 2022, but rents have increased by only 20 per cent or $469 while home values lifted by just 2 per cent or $871 across the combined capital cities according to CoreLogic.
Across Sydney, monthly mortgage repayments rose by $2069 or 56 per cent since before rates started rising. In comparison, rents only rose by $550 or 20 per cent while home values fell by 0.2 per cent.
In Melbourne, mortgage repayments rose by 50.4 per cent, but rents only increased by 20.3 per cent, while values fell by 3.7 per cent.
“Even though we’re seeing such strong rental conditions, investors’ outgoings have increased substantially more than their rental incomes unless they don’t have a mortgage or are not as leveraged,” Mr Lawless said.
“I think that’s probably where a lot of investors are facing some hardship in their monthly servicing costs.”
By contrast, the strong capital and rental growth across Brisbane, Adelaide and Perth had provided investors with more than enough cash to offset the sharp rise in mortgage costs.
Scott Kuru, property investor and co-founder of property investment advisory firm Freedom Property Investors said while some investors may struggle, most have enough buffers to cover further rate rises.
“Most investors have already factored in three or four interest rate rises, so they’re more than capable of absorbing any rate rises,” he said.
“Interest rate costs are also tax-deductible and the increase in rates can be passed on to renters as well if the lease allows them.
“I think experienced investors are not concerned by the prospect of higher rates, but it may reduce the number of new investors coming into the market.”
Adrian Lee, Melbourne-based investor and portfolio strategist is among those who remain unfazed by talk of another rate rise.
“I’ve just exchanged on my third investment property, which I bought in Townsville, Queensland, because we’re seeing strong momentum in this market,” he said.
“I think it’s a great opportunity to invest now, because of the potential for strong capital growth when rates do come down, while rents are continuing to rise.
“I’m not worried about further interest rate rises because I can see the massive undersupply of housing in the country which could go on for many years, which would support price and rental growth for the foreseeable future.”
