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Investors using rate cuts to pay down mortgage

Property investors have responded to historically low interest rates by paying down their mortgage debt rather than funding new ventures, according to an industry stakeholder.

According to Your Property Your Wealth director and buyer’s agent Daniel Walsh, property investors are capitalising on lower interest rates, triggered by the Reserve Bank’s cuts to the cash rate, by paying down their mortgage or refinancing rather than investing in other projects.  

“Investors with variable mortgages have seen interest rates tumble by 1 to 2 percentage points over the past year,” Mr Walsh said.


“Some investors have also opted to refinance now that the lending environment is more favourable to them, which has resulted in their repayments dropping even more.

“Rather than frivolously spending that extra cash flow, many investors are opting to pay down their debt.”

Mr Walsh said the trend is proof that negative gearing is not being used as an investment strategy, with most property investment portfolios increasingly becoming neural or positively geared.

The director pointed to research from the Property Investment Professionals of Australia (PIPA), which found that 52 per cent of investors expected to be positively geared within five years of purchasing their property.  

“What’s interesting is that the research was conducted before one of the recent rate cuts, so that time frame is likely to be dramatically shortened,” he added.

Mr Walsh, who himself manages a portfolio worth approximately $4 million, said rate cuts have provided him with an extra $9,000 in cash flow, which he has used to pay down his debt, in turn increasing his passive income to $68,000 per annum.

“We are using those extra funds to pay down our portfolio, which at the end of the day is the goal for all investors,” he said.

“Of course, buying strategically located properties will increase your chances of solid future capital growth.

“However, the debt does need to be repaid at some point, and the current lending conditions as well as low interest rate environment makes the timing perfect for investors, like us, to do just that.”

According to analysts, recent rate cuts have also lured investors back into the property market, following a prolonged period of subdued demand for credit, sparked by tighter lending conditions.  

Data from the Australian Bureau of Statistics has revealed that the value of loans to investors increased by a cumulative 10.3 per cent over the months of August and September, before slipping 4 per cent in October.

The rebound in investor demand has coincided with a reversal in property prices, with national home values up 2.9 per cent over the past quarter, led by a quarterly increase of 3.6 per cent across Australia’s combined capital cities.

[Related: Construction weakness moderates in third quarter]

Investors using rate cuts to pay down mortgage
Investors prioritising mortgage repayments

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