Investor and owner-occupier mortgage rates converge to closest level on record

The typical variable rate on a new mortgage for an investor was 5.69% p.a. in August, according to the latest Reserve Bank of Australia (RBA) data. 

That's just 3.3% higher than the 5.51% p.a. rate on the table for a typical owner-occupier seeking a new home loan .

The new nadir follows a long period of narrowing between rates offered on the two loan types.

The difference between typical rates on the two products peaked in mid-2022 when investors were paying 12.4% more than owner-occupiers (2.41% p.a. versus 2.71% p.a. - a 30 basis point difference).

Lenders typically offer lower rates to owner-occupiers, who are considered less risky borrowers than investors reliant on rental income to meet repayments.

If the rental market softens or an investor faces a financial setback, the risk of default can rise.

Investors more prevalent in the property market

Recently however, strong rental conditions, record property prices, and falling interest rates appear to be fuelling renewed investor demand.

Property investors accounted for 38% of new loans written in the June quarter, ABS data shows, up sharply from just 24% in late 2020.

That's the largest share of the mortgage market taken up by investors since the banking regulator dumped restrictions on lender mortgage growth.

The Australian Prudential Regulatory Authority (APRA) limited the growth of investor mortgages within large lenders' loan portfolios to 10% annually in around 2015.

At the time, investor and high-risk lending - including loans to borrowers with small deposits, high debt-to-income ratios, or interest-only terms - were driving up house prices and adding to financial stability concerns.

Such restrictions were largely removed in 2018 thanks to an improvement in banks' lending practices and on the proviso that bank boards would continue engaging in safe lending practices.

However, the watchdog has recently rung the alarm on economic conditions once more, revealing it's readying macroprudential tools needed to manage lending risks.

"Should interest rates fall significantly further while labour markets remain robust, that has historically led to higher credit growth and leverage, higher house prices, and often more risky lending, such as high debt-to-income and investor lending," APRA chair John Lonsdale said in July.

"Although lending standards are currently sound, it's important to be forward-looking and prepared for potential risks at future points in the financial cycle."

But while the sun shines, lenders appear to be seeking to make hay, with many shifting rates in what could be a bid to secure a larger share of the investor mortgage market.

Home loan providers targeting rentvestor swing

Horizon Bank currently offers the lowest investment home loan on the YourMortgage.com.au database, offering a 5.24% p.a. (5.24% comparison rate*) to first home buyers purchasing investment properties (rentvestors or 'nestvestors').

Westpac's latest Home Ownership Report, released in February, found more than half of first home buyers were considering tackling affordability issues by rentvesting.

Rentvesting involves buying an investment property while continuing to rent, while nestvesting, a term coined in-house, means to purchase a property while remaining in the family home, or 'nest'.

"Rent-vesting is growing in popularity as more buyers look to get their foot on the property ladder sooner, particularly in capital cities where housing prices are typically higher," Westpac managing director of mortgages Damien MacRae said.

Lenders slashing variable investor mortgage rates

Non-bank lender loans.com.au is among a handful of lenders slashing variable rates for property investors in recent weeks.

The online entity dropped advertised rates on its Investor Package product by four basis points to 5.49% p.a. (5.53% p.a. comparison rate*) on Wednesday.

That rate is available to eligible investors seeking to make principal and interest repayments with loan-to-value ratios (LVRs) of 80% or less.

Meanwhile, rates for the same investor looking to make interest only repayments were dropped by 24 basis points to 5.69% p.a. (5.78% p.a. comparison rate*).

The move comes just one week after ANZ subsidiary Suncorp Bank dropped select variable rates advertised to investors by as much as 20 basis points, while Westpac slashed investor rates for direct-to-bank applicants by 20 basis points to as low as 5.39% p.a. (5.40% p.a. comparison rate*) in early October.

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