Rising rates ‘crippling’ lending to investors, expert says

An expert warned that the rental crisis affecting the country is set to “get even worse”, as the Reserve Bank’s rapid rate rise cycle continues to have a “crippling impact” on lending to property investors. 

The latest data from the Australian Bureau of Statistics (ABS) showed lending to property investors fell by a staggering 34.8 per cent over the 12-month period to January 2023 and a steep 7.38 per cent on a monthly basis. 

Kevin Young, the president of Property Club, stated that the central bank’s monetary policy tightening has had a crippling impact on lending to property investors.

“Since March 2022, monthly lending to property investors has dropped massively from $11.4 billion to $7.6 billion for January 2023.

He stated that nine successive interest rate rises since May 2022, which brought the country’s cash rate to stand at 3.35 per cent in February, have clearly resulted in a flight of property investors from the real estate market. 

Mr Young underlined that the rate hikes come at a critical time when the market needs “more new investment to fix our current rental crisis”. 

The executive of the independent property group also pointed out that first home buyers are also feeling the sting of the rate increases based on the annual data. 

“In worse news for the rental market, the latest figures show that lending to first home buyers has also collapsed by 36.5 per cent. That means even more pressure on the rental market as fewer people who are currently renting are making the leap into home ownership,” Mr Young stated. 

Compared to the previous month, lending to first home buyers has also fallen by 7.74 per cent.

This lack of supply due to investors shying away from the market, coupled with first home buyers unable to leave rental living, is set to further the rental squeeze, the expert warned. 

“Property Club predicted that rents in Australia’s largest capital cities will jump by more than 20 per cent over the coming year and these latest lending figures indicate that this prediction could be optimistic.  

“We have been warning over the past year that rising interest rates will make the rental crisis even worse and this prediction is proving to be correct,” he added.

With the RBA expected to raise rates again during its March policy meeting, Mr Young cautioned that the rental crisis will soon evolve into a “disaster with a resulting blowout in [homelessness]”. 

“The only winners from rising interest rates are the big banks who will pocket an extra $10 billion in windfall profits during the next three years,” he commented.

To help offset the impact of the rate rises on renters, Mr Young raised a proposal from the Property Club for $10 billion in bank profits from rising interest rates to be used to fund financial assistance for renters struggling with higher rents due to rental stress.

“Higher interest rates are making the supply of rental properties in Australia even worse. This supply problem can only be fixed by lowering interest rates, reversing APRA’s interest-only and tougher home loan lending serviceability rules and allowing depreciation again on second-hand properties,” he concluded.

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