Need a loan for an investment property? Here’s one expert’s advice on what to look for
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Is the market for investment property loans in Australia still a buyer’s market and how long will things stay the way they are now?
While this was no sign the RBA will follow suit, it has come after the expiration of the RBA’s Term Funding Facility.
Stockhead spoke with Peter Marshall from comparison website Mozo about the state of the investment property loans market in Australia and what investors need to look for going forward.
“It’s really interesting at the moment; there’s a lot of activity going on and it’s not just owner occupied, it’s also for investor rates,” Marshall told Stockhead.
“So particularly the principal and interest loans, the lenders are keen to get as much new business as we can at the moment so we’re seeing some sharp rates being introduced, particularly variable rates.
“One of the recent changes is online lender Tic:Toc, [it] dropped its rate to 2.19%, so that’s a sharp rate. The average investor principal and interest loan is 3.63% at the moment and for the Big 4 banks it’s higher than that.
“So we calculated that someone changing from a Big 4 bank rate to a 2.19 per cent rate such as the one from Tic:Toc – they could save as much as $142,000 over the course of a 30-year loan. So there’s some huge differences in rates going on out there.
“The other thing is, while there‘s competition for variables there’s upward pressure on fixed, so we have two different things going on.
“While variable are creeping down, the fixed rates are starting to push up. There are still a few lenders offering rates less than 2% for up to fixed 3-year terms but if you look at 4- and 5-year terms they are closer to 2.5% for the lowest rates and the rates up to 2% are starting to disappear.
“So if anyone’s looking for short- to medium-term fixed rate they should act quickly rather than waiting, as those rates aren’t going to be around for much longer.”
“I think there’s such a demand for properties out there at the moment that a small increase in what are incredibly low rates is not really going to have much of an impact in overall activity.
“We’re still looking at record all-time low interest rates. Money’s never been this cheap before so it’s certainly keeping the engines running hot.”
“A lot of them are really focused on refinances. Because the process of going through a full application can be expensive and take lots of hands-on involvement, they often focus on refinancing.
“So if you’re someone getting into the property market some of these loans may not be available to you and you may need to look to a traditional full service kind of lender.
“But there are some online lenders that cater for those, so it just might take a little bit more research to find out which ones are available.
“But overall there’s no real downside going to an online lender, especially if you already have a loan established – they’re an easy and cheap way to go.
“And there’s no risk, it’s not like they’ve got your money. If something terrible happened and in the unlikely event that one went under, that would be transferred to another lender who bought their book.
“So there’s no risk in going with some of those smaller guys; a lot of the smaller guys do neater innovative stuff the big buys haven’t started to do yet.
“For example, Athena Home Loans give you an automatic rate cut every time you slip below their Loan to Value [LTV] ratio tiers. With other lenders you may start off with 80% LTV ratio and then after you pay it off for ages you get down to 70% but you don’t get (a lower) rate for that unless you refinance or re-negotiate. But with Athena, they will drop it straight away.
“It’s things like that which really add value to loans and help people to get out of debt faster.”
“I think the key thing is looking for an offset account – they can be incredibly helpful in reducing total amount of interest you pay on a loan.
“If you have a bit of cash around in a short period you can throw it into offset account and take it back whenever you want and the interest bill is offset by amount of deposit. Even if you only do it occasionally and not for long periods you still get the benefit of it, so it’s a great, flexible feature to have.
“And the other thing I’ve noticed at the moment when having a look at these loans is often cashback offers are restricted to owner occupier loans, but there are plenty of lenders at the moment offering cashback on even investor loans.
“So if you’re refinancing you can get one that comes with $2-$3,000 cash in hand so they’re definitely worth checking out as well.”
“Low interest rates are definitely driving activity and the RBA just says ‘That’s not our problem we’re here to set interest rates, we can’t deter what affect its having on the market’ but APRA’s keeping an eye on it.
“They’ve said if things are getting too far out of hand they’ll step in with restrictions. We’ve seen them apply restrictions on the volume of investor loans for banks before and that’s certainly an option that’ll be available to them again.
“If you look at total lending volumes, the owner occupier loans have been growing really strongly but just recently in the past couple of months they’ve started to outstrip them so I think that’s an area APRA would be keeping a close eye on and keeping their options open.”
“It does seem like any interest rate increase is going to be a little way off yet but the future is very unclear at the moment, there are so many factors in play.
“That could come quite a bit sooner than the RBA’s forecasting.
“If interest rates start to go up I do expect that to take some pressure out of other investment options such as stocks. People go back to things a little less risk exposed and take advantage of increasing deposit rates even if it’s only by a small amount.”