Wary investors are holding back on their plans to buy more properties as the effect of rising interest rates begins to weigh on their cash flow, a new report has showed.
Mortgage broker Australian Finance Group (AFG) revealed that even before the February rate decision, investors already started to head to the exits. For the first time in 18 months, the proportion of investors dropped below 30% of all new loans sold by AFG. Investor interest fell in every state except Queensland where it held steady, according to the report.
"The effects of the long succession of rate rises are becoming increasingly evident," said Kevin Matthews, director with AFG. "For some time it's been the lower and middle property markets which have been worst affected. But now we're also beginning to see investors - who have such an important role to play in sustaining the private rental market - becoming wary. With vacancy rates at an all-time low in many areas, this may well be a side effect of fiscal policy that needs to be closely monitored in the short to medium term."
Fears of further rate rises have also prompted a growing number of property owners to refinance to a better deal or lock in interest rates. Almost two out of five mortgages (38.2%) arranged in February were for refinancing -an all-time high, according to AFG. Homeowners and investors choosing to take fixed rate loans have also surged to 25.3%, which is just a shade lower than the all-time high of 27.3% recorded in November 2007.
"People with loans are seeking assistance in weathering the storm by refinancing or locking in rates," said Matthews.
While the number of loans sold is higher on a month-on-month basis, AFG noted a national decline of 8.3% in the number of mortgages sold in February 2008, compared to a year ago. Queensland was the hardest hit, with figures falling by 14.2%, NSW by 13.7% and Victoria by 8.1%.
