What should investors do about tightening rates?
The rising price of Australian property is almost irrelevant in the current interest rate environment, but investors have just been hit with a wake-up call.
Blogger: Rich Harvey, CEO and founder, propertybuyer
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With the Reserve Bank of Australia's cash rate sitting so low, the cost of borrowing is actually down to the point where buying property is incredibly affordable to all income levels.
But of course, nothing lasts forever – and for those looking at Sydney investment property, a wake-up call has just been sounded by some of the big banks. So what's happened and what should people be doing about it?
Interest rate rises for investors
In the past week or so, three of the big four banks announced increases to the interest rates on their investment loans – the Commonwealth Bank, ANZ and the National Australia Bank. What's particularly newsworthy is that it isn't just happening to new mortgages: existing loans are going to get an interest rate hike, too, in some cases of up to 0.4 per cent. The smallest jump is going to be 0.1 per cent.
"It allows us to balance the mix of our lending between owner-occupied and investment lending, as well as the impact of changing market conditions," said Mark Whelan, CEO of ANZ Australia in a 23 July statement.
As these changes take effect in coming weeks, investors are going to be looking around for a better deal. What's going to be the best way forward?
Taking charge
Refinancing home loans is likely to be a popular option in the short term, as people try to re-fix their interest rates into something more affordable. The idea behind this is that investor activity is taking up too much of the market and raising interest rates will slow this activity – which I think is a little unfair on a market that has been driving a lot of growth in our local housing sector.
On the other hand, the silver lining of these interest rate rises is that some lenders, in particular ANZ, have dropped interest rates on owner-occupier loans by up to 0.4 per cent. This is going to be great news for upgraders and first home buyers, improving affordability at a time when it was already looking excellent.
The adjustments to investment interest rates might have completely changed what you can afford in the Sydney real estate market as well, shrinking your budget and forcing you to look elsewhere.
