The Adviser| 25 September 2018
An increasing number of property investors are looking to secure their next loan through a mortgage broker as they seek alternative finance solutions amid tighter lending policies.
According to a survey of 820 property investors from the Property Investment Professionals of Australia (PIPA), 86 per cent of property investors intended to secure their next loan through a mortgage broker, up from 83 per cent from PIPA’s 2017 survey.
The survey also found that 75 per cent of investors secured their last investment loan through a broker, up from 73 per cent in the previous year.
Conversely, 20 per cent of respondents said they secured their last loan directly from a bank while 2.8 per cent directly from a credit union, building society or specialist lender.
The survey also found that despite out-of-cycle rate hikes from lenders, fewer investors said they were considering fixing their interest rate, down from 49 per cent in 2017 to 44 per cent.
However, almost 27 per cent of respondents (up from 23 per cent in 2017) said they would consider refinancing their loan for an interest rate differential of just 0.5 of a percentage point, while more than 17 per cent said they would consider refinancing for 0.1 percentage point (down from 23 per cent in 2017).
The survey also reported that 35 per cent of investors (up from 30 per cent in 2017) said they either have switched or intend to switch to principal and interest repayments, while 36 per cent stated that they have no plans to switch.
However, according to the research, 13 per cent of interest-only borrowers were expecting to “struggle” when they begin repaying principal and interest, with a further 13 per cent “unsure” and 61 per cent confident in their ability to meet repayments.
Of those that said they would struggle to meet principal and interest repayments, 5.5 per cent said they have sold, or would have to sell, an investment property to meet loan commitments.
The results come amid concerns from the Reserve Bank of Australia (RBA) about the potential for some borrowers to fall into mortgage stress following the expiry of the interest-only period, with the bank claiming that such borrowers could pay an additional 30 to 40 per cent in repayments per year.
Additionally, the survey found that 48 per cent of investors said that changes to investor lending policies have impacted their ability to secure finance, compared to 43 per cent when the survey was conducted last year.
Property investors also expressed concern about potential changes to negative gearing and capital gains tax (CGT) policies, with 45 per cent of respondents indicating they would reconsider their future investment plans because of proposed changes.
“The financial services crackdown on investors is having an impact on sentiment,” PIPA chairman Peter Koulizos said.
“Turmoil in government ranks that saw a change in the prime ministership has translated into increased opinion poll support for the opposition, so investors face the very real prospect of seeing tax deductions cut, and this is playing into their purchasing decisions.”
The survey revealed that 60 per cent of investors said that their portfolio would be positively geared within five years, and 71 per cent believed changing negative gearing and capital gains tax policy would not improve housing affordability.
Investors undeterred by slowing housing market
The research has also found that 77 per cent of respondents thought that now is a good time to invest in property, with 52 per cent were looking to purchase a property in the next six to 12 months.
Moreover, despite the reported housing market slowdown in Sydney and Melbourne, 90 per cent of investors said that concerns about price falls would not impede their investment plans.
Brisbane was the most favoured capital city for investors, with 44 per cent believing that it was the capital city with the best investment prospects, up from 43 per cent last year.
Conversely, approximately 26 per cent of investors held a favourable view of the Melbourne market, down from 32 per cent last year, while only 8 per cent chose Sydney and believed it has investment potential.
“The affordability of Brisbane compared to Sydney and Melbourne has really come into sharp focus in the past year,” Mr Koulizos continued.
“Not only are investors considering the Sunshine State capital as an investment location, a growing number are choosing to migrate to take advantage of the significant value gap as well as Queensland’s enviable lifestyle and strengthening economy.”
The survey also found that the number of investors looking to buy a house has remained flat at 67 per cent compared to 2017; however, the proportion of investors looking to buy units or apartments has fallen to 6.5 per cent from 9.3 per cent in 2017.
The survey indicated that 72 per cent of investors remained keen on opportunities to invest in metropolitan markets, while coastal locations had lost favourability, down to 8 per cent from 12 per cent in 2017.
Meanwhile, the proportion of investors that said regional markets were the most appealing had risen to 20 per cent from 15 per cent in 2017.