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Investor rates to hit 6.5% by 2020: QBE

by Reporter5 minute read
Investor rates

Insurance provider QBE has predicted that borrower rates will go up across the board by 2020, with investor interest-only rates to top at 6.5 per cent and standard variable rates to reach 5.5 per cent.

The predictions come in the QBE Australian Housing Outlook 2017–2020, which forecasts what the market will look like in three years’ time.

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According to the report, the cash rate will have risen only marginally at 1.75 per cent.

Further, the insurance provider predicts that the standard variable rate for borrowers will increase from its current level of 5.3 per cent to 5.5 per cent in 2020, the investor rate will rise from 5.8 per cent to 6 per cent, and interest-only rates for both owner-occupiers and investors will increase to 6 per cent and 6.5 per cent, respectively.

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The report reads: “Low interest rates have helped drive up prices and investors have been a key source of demand. Successive initiatives by the financial regulators to dampen speculative investment has resulted in banks lowering loan-to-value ratios to investors, as well as charging higher interest rates to investors and for interest-only lending. The latest restrictions on interest-only loans are expected to cause a slowdown in investor lending over 2017/18. This is likely to have a negative effect of swelling prices, with price falls expected in some cities.”

Median house price growth in Sydney and Melbourne is expected to weaken in 2017/18 due to lower investor activity in the market (with a greater impact on Sydney, given its “recent influence from investors”), while the “emerging momentum” in Canberra and Hobart is expected to continue.

Perth and Darwin do not fare as well, with downturns expected to “bottom out” next year.

Indeed, the report forecasts house price growth to drop by 0.2 per cent in Sydney and 0.9 per cent in Darwin, but increase by 2.8 per cent in Perth and a whopping 16.3 per cent in Canberra.

QBE goes on to highlight that unit price growth across the board would underperform house price growth, given that a “disproportionately higher number of units being built in most markets will result in an excess supply in units”.

“Restrictions on investor lending will also have a negative effect, given units are more favoured by investors,” the insurance provider says.

QBE LMI chief executive Phil White attributed the fall in unit prices as a means of addressing housing affordability issues, with potential property owners choosing to opt for medium- to high-density apartments.

“Units contribute to a greater share of the market as changing lifestyles and affordability dictate property choices,” Mr White said.

“Encouragingly, that dream should become a reality for more Australians, with improving affordability overall.”

Produced by BIS Oxford Economics, the QBE Australian Housing Outlook 2017–2020 shows that, overall, Australian houses are generally set for growth.

[Related: Stamp duty changes driving first home buyer comeback]

Investor rates to hit 6.5% by 2020: QBE
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