\nWould higher interest rates on investment loans cool the investor market and what exactly drives investment lending? Two questions I put to\u00a0Andrew Mirams.<\/b>
\n <\/p>\nRead the transcript here:<\/h4>\n
Kevin:\u00a0<\/b>\u00a0It\u2019s very easy to say that investors are driven to borrow more money when interest rates are low, but what really does drive investment lending? Let\u2019s find out with Andrew Mirams from Intuitive Finance.
\nAndrew, the question for you today is what does drive investment lending?
\nAndrew:\u00a0<\/b>\u00a0There\u2019s a whole range of options, of course, Kevin. At the moment, we\u2019re sitting at record low interest rates, and the banks are out there very actively competing for business. Those people who are savvy investors are saying, \u201cMoney\u2019s cheap.\u201d You have first- or second-time investors. Money is so cheap at the minute that the reality is it\u2019s not costing you a lot of your cash flow to actually hold that property. Low interest rates are one really good driver.
\nAnother of the drivers I see in the market at the moment is the markets have been very strong over the last couple of years. Sydney has come off another really strong year. Melbourne has performed strongly. Brisbane is starting to grow. Perth. I think the only capitol that didn\u2019t perform in 2014 was Canberra. The property market is actually good. When things are going well, it\u2019s a little bit easier to convince people to borrow to buy that investment property.
\nThe third thing I think that we\u2019re now becoming very aware of is the population growth. Australia is growing at a rate of about 400,000 a year, which is basically adding a Canberra to Australia every year. All those people have to live somewhere. With people moving into towns and cities, they all have to live somewhere. If they don\u2019t have the money to buy, investors have to pick up that balance.
\nKevin:\u00a0<\/b>\u00a0Certainly the last two you gave us there \u2013 prices and population growth \u2013 are two drivers you can associate directly with property. I guess interest rates, when you borrow, it depends on what you put it into \u2013 whether you put it into properties or shares.
\nI\u2019m just interested to know if you think that interest rate movements, particularly higher interest rates, would actually cool the investor property market.
\nAndrew:\u00a0<\/b>\u00a0I don\u2019t think so. In fact, before deregulation, actually to buy an investment property you paid 1% or 1\u00bd% more on what you would for a home loan. People still ask that question quite regularly. \u201cIf I tell them it\u2019s an investment loan, won\u2019t they change me more?\u201d The reality is it\u2019s a very competitive marketplace out there and your investment loans are viewed just the same as a home loan.
\nBanks need to borrow money to make money. Would it slow it down? I don\u2019t think so because your investors are going to say, \u201cWell, that\u2019s a cost of doing business.\u201d If you put it up, they\u2019re going to look elsewhere. There\u2019s going to be someone else. Like I said, competition is going to drive that.
\nI think there\u2019s a lot of speculation around what APRA is going to do at the moment. Their real concern about the investor market is the higher LVRs and people who are getting in or going in because money is cheap and really borrowing to the hilt and going 95%. I think that\u2019s the real concern.
\nWhen rates were 10%, 12%, and 18% back in the days when we can probably remember and people laugh at now. It goes up \u00bc% now and people cry. Ask someone who was paying a home loan at 18%.
\nKevin:\u00a0<\/b>\u00a0I\u2019ll put my hand up.
\nAndrew:\u00a0<\/b>\u00a0Yes, absolutely. We all were. I\u2019m not sure that interest rates will dictate that. It\u2019s going to be all the other drivers in the market, I think.
\nKevin:\u00a0<\/b>\u00a0If you look at it, too, the other way and say higher interest rates actually discourage young people from buying properties; they would probably prefer to rent, which means you\u2019re going to mean more rental properties, which probably actually is a bit more of a carrot for investors, I would have thought.
\nAndrew:\u00a0<\/b>\u00a0Absolutely. It could potentially grow it, you\u2019re right. If your first-home buyers and those upgraders can\u2019t afford to upgrade and buy, an upgrader might say, \u201cWe\u2019re living in a nice part of Melbourne; we want to go to the Bayside\u201d or something like that or you want to go for a lifestyle change, you might not be able to afford the property in that area so you will rent. That\u2019s going to drive potentially your investor market even stronger, and it\u2019s going to drive those people out.
\nKevin:\u00a0<\/b>\u00a0Andrew Mirams is from Intuitive Finance. Make sure you check out Andrew\u2019s channel too on Real Estate Talk. There\u2019s a new article or video that you put up there about whether you should fix or float your rate. That\u2019s a whole new topic for us, but if you want to find out about that, go and have a look at the featured channel for Andrew Mirams on Real Estate Talk.
\nAndrew, thanks for your time.
\nAndrew:\u00a0<\/b>\u00a0My pleasure, Kevin. Have a good day.<\/p>\n","protected":false},"excerpt":{"rendered":"
Would higher interest rates on investment loans cool the investor market and what exactly drives investment lending? Two questions I put to\u00a0Andrew Mirams. Read the transcript here: Kevin:\u00a0\u00a0It\u2019s very easy to say that investors are driven to borrow more money when interest rates…<\/p>\n","protected":false},"author":176692471,"featured_media":2042,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[10,25],"tags":[101],"class_list":["post-3485","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-kevin-turner-sponsored-channels","category-sponsored-channels","tag-podcast"],"yoast_head":"\n