Opportunities and challenges for property investors as lending landscape shifts

After a year of rising interest rates, there are some significant shifts occurring in the lending market that will have implications for property investors. Liston Newton’s Head of Lending, Michael Hughson, provides his insights on what you can do to navigate the challenges and make the most of opportunities over the next 12 months.

After delivering 12 official interest rate rises in quick succession, the Reserve Bank of Australia (RBA) recently took its foot off the monetary policy brake and has kept its cash rate steady over the last few months.

It’s a welcome reprieve for mortgage holders who’ve been feeling the pinch as their repayments have risen rapidly over the year through June. But what’s next for interest rates and what does it mean for property investors?

Preparing for the rate surge

A lot of economists are now predicting the RBA cash rate will stabilise around the current 4.1% level, although there is potential for one more rate rise if inflation data released in October is stronger than expected. From there, the trajectory is down. Some are forecasting the cash rate will return to around 2.5% by early 2025, which would take the average home loan rate for owner-occupiers to around 4.5%, compared with 6% now.

Despite the relief from official rate rises, many homeowners remain under stress. In what has become known as the ‘mortgage cliff’, there are about 880,000 fixed loans maturing in 2023, and many of these borrowers will see their loan rate surge from about 2% to about 6%.

Opportunities for buyers

As the impact of this phenomenon continues to hit home over the next six months, many property owners will choose to sell their home and rent to free up cash. Others may be forced to sell by their lenders if they can’t make their mortgage repayments. This could increase supply in the property market next year, potentially creating a ‘buyer’s market’, where real estate is more affordable because there are more homes available than there are buyers.

Still, the property market remains strong supported long term by Australia’s strong economic fundamentals and solid population growth. Some people still have savings they built up during the pandemic, and many homeowners have a couple more years before their fixed loan matures, which will provide stability for the market.

What this means for you

If you have a mortgage, it might be time to consider doing a health check on your loan. That might be as simple as a rate review, to make sure you are paying the best possible rate. Or, if you have multiple debts, you may benefit from consolidating to reduce your total payments.

When your fixed loan matures, your bank may automatically roll your debt onto a standard variable rate, which may not be the lowest rate available. By assessing your options and potentially changing lenders, you may be able to access an introductory discounted rate.

If you are considering buying a property, now is a good time to check your borrowing capacity. Our experience of the Melbourne property market over the last 40 years is that there has never been a bad time to buy if you are a long-term investor. Now, with rates stabilising and potentially more supply coming onto the market, those investors who know their borrowing capacity will be well placed to take advantage of attractive buying opportunities as they become available.?

At Liston Newton, we offer holistic lending advice to suit your financial goals. If you are interested in reviewing your mortgage, or assessing your borrowing capacity, please reach out to our team of lending advisers.