The major banks have made their move, but will rising interest rates and reduced market activity provide new opportunities for property investors?
ANZ has this afternoon confirmed that it will be raising its variable home loan product interest rates by 18 basis points for investors and owner-occupiers.
The news means that all four major banks have now upped their variable home loan rates within the past two weeks, leading to speculation that Australia’s largest property markets will take a further hit to prices in the coming weeks.
CBA announced a 15 basis point rise to both its standard variable home loan and investor loan products yesterday, while NAB announced a 17 basis point increase for the same products this morning.
Westpac was the first bank to make a move, shifting rates up by 20 basis points last Tuesday.
All banks cited recent capital raising requirements imposed by APRA as the reason behind the change.
Victor Kumar, director of Right Property Group, believes that the changes will have a psychological impact on potential buyers and dampen their confidence, leading to increased opportunities for savvy investors.
“Certainly it does have an impact on buyer confidence, where it does play on people’s mind in terms of affordability, but one of the things we need to remember is that it wasn’t too long ago that we were paying the same rates, so essentially all they’ve done is wind back one interest rate decrease or thereabouts.
“It’s either a glass half-full, or a glass half-empty approach. If you’ve got a glass half-empty approach, then you’d run. From a property investor’s point of view, it comes back to how much negative cash flow you’re already holding in your portfolio and whether you have pre-planned for any interest rises. Now if you’re not really able to afford any rate increases, now would be the ideal time to fix your loan providing you have long-term holding plans for the property,” he said.
“If you’re looking at it in terms of half-full, what it means from an investor’s point of view is that there will be less buyers, potentially, in the market, which means that the vendors will be a lot more negotiable.”
Andrew Wilson, Domain Group’s chief economist, expects that the decision will have a negative impact on consumer sentiment over the coming weekends, as the spring auction market kicks into full swing.
“Nothing will halt a property market faster than rising interest rates, and we saw the impact of higher rates, or even just the thought of higher rates, last week from that Westpac announcement where we had a sharp fall in the clearance rate in Sydney and a fall in Melbourne. This is now obviously going to add more impetus to that trepidation of buyers,” Mr Wilson said.
“We’ve got super Saturday in Melbourne coming up and it’ll be the highest weekend of the year and probably go close to the record number of auctions, so again it’s a hit to the Melbourne market.”
Rates rising while the market enters a downturn is an unprecedented event, according to Mr Wilson, meaning that true extent of the negative impact is difficult to pinpoint.
Jason Back, managing director at The Australian Lending and Investment Centre, disagreed and said even with the recent rises, rates remain at near-historic lows.
“The reality is that we’re still at record-low interest rates. If you look back to 2012, we were still looking at seven-plus per cent interest rates. So I think that, for some people, it will get them thinking a little bit more, but the reality is that it’s still a really positive environment. I think people just need to be better educated about what it means for their overall position; I don’t think it’ll make a big difference at this stage.”
Cate Bakos, buyer’s agent and director of Cate Bakos Property, believes that changed serviceability requirements and LVR restrictions for investors, introduced by banks earlier this year in response to APRA directives, are having far more impact on the market than any rate shifts.
“I would argue that the actual interest rate increase has not hurt investors as much as the stricter borrowing constraints that have been enforced by the bank […] that’s been more detrimental to investors moving forward, in my view, than the additional costs of the borrowings because a lot of investors are smart enough to realise that we still have very, very low comparative interest rates when you benchmark where they’ve been over the last 10 years,” she said.