Homepage
PR Newswire
04-10-2014, 08:08 AM
http://www.afr.com/p/personal_finance/sm...jzlubeDhIP
Scramble for housing gets riskier
PUBLISHED: 5 HOURS 28 MINUTES AGO | UPDATE: 4 HOURS 58 MINUTES AGO
Scramble for housing gets riskier
If prices fall investors could be left with a bigger loan than the value of their property, leaving them in a dreaded “negative equity” position. Photo: Louise Kennerley
RBA faces the daunting challenge of housing
Young buck aims for 10 properties by 30
Investors are taking advantage of super low mortgage rates to get a foothold in the current property boom.
Greater numbers, though, are moving up the risk curve to get into the market, borrowing at higher loan-to-value ratios and taking out riskier interest-only loans on the premise that house prices will continue to rise.
One in two home loans in NSW over September were for investment purposes, according to Australia’s biggest mortgage broker, Australian Finance Group. It was a record month, with investors also accounting for more than a third of home loans in Victoria, South Australia and Queensland.
In Sydney, the dominance of investors (50 per cent) and the withdrawal of first-home buyers (less than 4 per cent of all AFG home loans in September) is most pronounced.
Westpac economist Matthew Hassan says rising property prices, falling fixed mortgage rates and gross rental yields comfortably above both term deposit rates and dividend yields have created a mix “conducive for strong investor activity”, particularly in Sydney.
Mark Hewitt, chief operating officer at AFG, says in Sydney and Melbourne there is a flight among investors towards property over shares. “In the last two years, competition for home loans is the strongest it has ever been.”
But, he argues, credit standards have not slipped. “Lenders remain quite choosy,” he says. “Most investors take out a standard principal-and-interest loan on their primary residence, but want to keep payments on their investment loan at a minimum.”
Hence the rise of interest-only loans, where only the interest is paid off each month, leaving the principal untouched as investors punt on price gains to build equity.
However, if prices fall investors could be left with a bigger loan than the value of their property, leaving them in a dreaded “negative equity” position.
“Investor lending is not a major problem at this stage,” Hewitt says. “But it’s very prudent the RBA is watching the market closely and bringing its concerns to people’s attention.”
Loan-to-value ratios under 80 per cent (the point at which a borrower does not require lender’s mortgage insurance) declined from 46 per cent to 40 per cent over September.
At the same time appetite for conservative fixed-rate loans rose to 28 per cent of all new investor lending. “There are some very good fixed-rate offers in the market and not a lot of downside risk given how low they already are,” Hewitt says.
MOST POPULAR HOME LOANS
Comparison website Finder.com.au’s most popular home loans are a 4.39 per cent three-year fixed-rate home loan with building society Newcastle Permanent and a 4.54 per cent variable rate loan from online lenderloans.com.au, an offshoot of non-bank lender FirstMac.
“Competition is strong for investment home loans,” says finder.com.au’s Michelle Hutchison. “Investors can improve their returns with a good value home loan deal; the difference between a $300,000 investment home loan at the average variable rate of 5.31 per cent compared to the lowest rate of 4.54 per cent, could save them $141 a month” – $50,000 over 30 years.
However, finder.com.au also recorded a 73 per cent rise in borrowers taking out interest-only home loans in September 2014 compared with the same month last year.
“For investors, it may be easier to manage cash flow if it’s a short-term investment. However, this may be a risky move for some borrowers – if they overstretch themselves – as rates are expected to rise next year”, Hutchison says.
Among the banks, Westpac is the nation’s biggest lender to investors, according to APRA figures, ahead of the Commonwealth Bank and its big four rivals. Macquarie Bank is a rising force, targeting investors borrowing against their self-managed super funds.
In Westpac’s case more than 90 per cent of its investor clients borrow below 80 per cent, are generally older, with higher incomes and higher credit scores. Owner-occupiers carry more risk.
But economists, including AMP Capital’s Shane Oliver, say investors should keep in mind that residential property provides a similar long-term return to shares – about 11 to 11.5 per cent a year since the 1920s.
“They are also complimentary to each other in terms of risk and liquidity and are lowly correlated. All of which means there is a case for investors to have exposure to both,” he says. “At present, though, housing looks somewhat less attractive as a medium-term investment. The average gross rental yield is just 3.8 per cent. After costs this is just below 2 per cent. Shares and commercial property both offer much higher yields.”
Some investors have already seen the writing on the wall in markets like Sydney, where the median unit price rose to $575,000 in September, according to RP Data.
NSW police officer Charmian Whitehurst made good money on her first three properties, in Western Sydney. “I bought before the current boom,” she says. She has since shifted her attention to Brisbane, where she says houses are more affordable: you get more for your money and better returns.
Her seventh investment purchase was a one-bedroom apartment in Fortitude Valley, which she bought off the plan for $392.000.
Her bank, AMP, offered her a 4.8 per cent variable rate if she refinanced all her home loans with them.
The Australian Financial Review
Scramble for housing gets riskier
PUBLISHED: 5 HOURS 28 MINUTES AGO | UPDATE: 4 HOURS 58 MINUTES AGO
Scramble for housing gets riskier
If prices fall investors could be left with a bigger loan than the value of their property, leaving them in a dreaded “negative equity” position. Photo: Louise Kennerley
RBA faces the daunting challenge of housing
Young buck aims for 10 properties by 30
Investors are taking advantage of super low mortgage rates to get a foothold in the current property boom.
Greater numbers, though, are moving up the risk curve to get into the market, borrowing at higher loan-to-value ratios and taking out riskier interest-only loans on the premise that house prices will continue to rise.
One in two home loans in NSW over September were for investment purposes, according to Australia’s biggest mortgage broker, Australian Finance Group. It was a record month, with investors also accounting for more than a third of home loans in Victoria, South Australia and Queensland.
In Sydney, the dominance of investors (50 per cent) and the withdrawal of first-home buyers (less than 4 per cent of all AFG home loans in September) is most pronounced.
Westpac economist Matthew Hassan says rising property prices, falling fixed mortgage rates and gross rental yields comfortably above both term deposit rates and dividend yields have created a mix “conducive for strong investor activity”, particularly in Sydney.
Mark Hewitt, chief operating officer at AFG, says in Sydney and Melbourne there is a flight among investors towards property over shares. “In the last two years, competition for home loans is the strongest it has ever been.”
But, he argues, credit standards have not slipped. “Lenders remain quite choosy,” he says. “Most investors take out a standard principal-and-interest loan on their primary residence, but want to keep payments on their investment loan at a minimum.”
Hence the rise of interest-only loans, where only the interest is paid off each month, leaving the principal untouched as investors punt on price gains to build equity.
However, if prices fall investors could be left with a bigger loan than the value of their property, leaving them in a dreaded “negative equity” position.
“Investor lending is not a major problem at this stage,” Hewitt says. “But it’s very prudent the RBA is watching the market closely and bringing its concerns to people’s attention.”
Loan-to-value ratios under 80 per cent (the point at which a borrower does not require lender’s mortgage insurance) declined from 46 per cent to 40 per cent over September.
At the same time appetite for conservative fixed-rate loans rose to 28 per cent of all new investor lending. “There are some very good fixed-rate offers in the market and not a lot of downside risk given how low they already are,” Hewitt says.
MOST POPULAR HOME LOANS
Comparison website Finder.com.au’s most popular home loans are a 4.39 per cent three-year fixed-rate home loan with building society Newcastle Permanent and a 4.54 per cent variable rate loan from online lenderloans.com.au, an offshoot of non-bank lender FirstMac.
“Competition is strong for investment home loans,” says finder.com.au’s Michelle Hutchison. “Investors can improve their returns with a good value home loan deal; the difference between a $300,000 investment home loan at the average variable rate of 5.31 per cent compared to the lowest rate of 4.54 per cent, could save them $141 a month” – $50,000 over 30 years.
However, finder.com.au also recorded a 73 per cent rise in borrowers taking out interest-only home loans in September 2014 compared with the same month last year.
“For investors, it may be easier to manage cash flow if it’s a short-term investment. However, this may be a risky move for some borrowers – if they overstretch themselves – as rates are expected to rise next year”, Hutchison says.
Among the banks, Westpac is the nation’s biggest lender to investors, according to APRA figures, ahead of the Commonwealth Bank and its big four rivals. Macquarie Bank is a rising force, targeting investors borrowing against their self-managed super funds.
In Westpac’s case more than 90 per cent of its investor clients borrow below 80 per cent, are generally older, with higher incomes and higher credit scores. Owner-occupiers carry more risk.
But economists, including AMP Capital’s Shane Oliver, say investors should keep in mind that residential property provides a similar long-term return to shares – about 11 to 11.5 per cent a year since the 1920s.
“They are also complimentary to each other in terms of risk and liquidity and are lowly correlated. All of which means there is a case for investors to have exposure to both,” he says. “At present, though, housing looks somewhat less attractive as a medium-term investment. The average gross rental yield is just 3.8 per cent. After costs this is just below 2 per cent. Shares and commercial property both offer much higher yields.”
Some investors have already seen the writing on the wall in markets like Sydney, where the median unit price rose to $575,000 in September, according to RP Data.
NSW police officer Charmian Whitehurst made good money on her first three properties, in Western Sydney. “I bought before the current boom,” she says. She has since shifted her attention to Brisbane, where she says houses are more affordable: you get more for your money and better returns.
Her seventh investment purchase was a one-bedroom apartment in Fortitude Valley, which she bought off the plan for $392.000.
Her bank, AMP, offered her a 4.8 per cent variable rate if she refinanced all her home loans with them.
The Australian Financial Review