After a prolonged period of inactivity in the market, investor mortgage commitments are on the rise, with a cumulative increase of 11.6 per cent in the three months to August 2019.
According to the property research group, this rise is the fastest rate of growth in the value of investment lending commitments seen since November 2016.
Notably, investor activity in the market is still down from its peak, falling from 43 per cent of the market in mid-2015 to a record low of 25.8 per cent recorded in July this year.
CoreLogic head of research Tim Lawless stated that in the recent past, investors were affected by regulatory changes that limited the speed of investment credit growth and capped interest-only lending, which discouraged investment activity in the property market.
CoreLogic also highlighted that investors pay, on average, 58 basis points more in interest than owner-occupiers.
Additionally, the slowdown in housing market conditions also contributed to less investment activity, as the prospects for capital growth became less certain, and Mr Lawless suggests that the recent uptick in house prices have encouraged the recent spike in investment lending.
“More recently, housing market conditions have turned a corner, with values rising across five of the eight capital cities over the September quarter and three of the broad ‘rest of state’ region,” Mr Lawless said.
Mr Lawless stated that improved prospects for capital gains, as well as loosening serviceability requirements, have brought investors back into the housing market.
“Another incentive for a rise in investment is the narrowing spread between mortgage rates and rental yields,” Mr Lawless said.
According to CoreLogic, the average interest rate on a three-year fixed mortgage product for investors was 3.8 per cent in September, only one basis point higher than the combined capital city gross rental yield (3.7 per cent).
Such a narrow gap between yield and interest rates means that many investors can benefit from a positive cash flow asset from the time of purchase.
CoreLogic data showed a rise in the value of investment loans across every state and territory, with the largest increases over the three months ending August 2019 seen in Victoria and Queensland.
Investment activity is reportedly most concentrated in NSW, where investors make up 31.2 per cent of mortgage demand based on the value of loan commitments (excluding refinances), followed by Victoria (26.4 per cent) and Canberra (26.0 per cent).
Western Australia, which has seen falling house values since 2014, has the lowest share of investors at 15.4 per cent, according to CoreLogic.
Mr Lawless believes investment lending commitments will continue to rise into the future.
“Looking forward, there is a strong likelihood that investor activity will increase further,” he said.
“The long-term average shows investors are typically around one-third of mortgage demand, implying investors are currently under-represented in the market.
“As investment activity rises, we could see increased price pressures as this sector of the market tends to be more competitive in setting new price benchmarks.”
CoreLogic notes that a traditional by-product of a higher amount of investment activity in the market is likely to drive down the activity of first home buyers, as these two market segments typically counter each other.
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