More Investors Willing To Pay Higher Interest Rates

Co-author: Justine Davies
Those investing in property are now paying significantly higher interest rates than home buyers, leading more and more Aussies to compare investor home loans in search of a better deal.

Despite many warnings over the past few years, the property investment market across Australia has yet to slow down significantly – and in fact, property investment loan applications have recently increased!

In an effort to cool the property investment boom, banks have been increasing interest rates for property investors. But is it working? It would seem not.

How many Australians are property investors?

In December 2016, property investment loan borrowing increased by the fastest rate of growth since June 2015, despite rate hikes from many banks.

CANSTAR’s analysis of visitors to our home loan comparison pages shows that the number of people looking for investment loans has increased dramatically since our previous star ratings.

At the time of the September 2016 star ratings, the national average for investors since the start of 2016 had remained reasonably constant at approximately 15% of website visitors.

This figure has since increased and as of March 2017, the number of investors as a percentage of total visitors searching for home loans has increased to over 18% across Australia.

The percentage of visitors identifying as investors differs slightly on a state-by-state basis. The percentage of investors is highest in NSW, where investors make up more than 21% of those searching for a home loan.

State Mar-17 Sep-16
National Average 18% 15%
New South Wales 21% 16%
Western Australia 16% 15%
Tasmania 21% 15%
South Australia 18% 16%
Victoria 19% 16%
Queensland 16% 12%
ACT 17% 14%


What interest rate do investors pay?

Almost all lenders charge a higher interest rate on investors’ home loans compared to owner occupier home loans.

Currently on CANSTAR’s database, minimum, maximum and average home loan rates for investors are as follows:

Investment Home Loan Market Snapshot 20-03-2017
Stat Basic Variable Standard Variable 1-Year Fixed 2-Year Fixed 3-Year Fixed 5-Year Fixed
Average 4.50% 4.72% 4.37% 4.29% 4.34% 4.74%
Min 3.69% 3.67% 3.69% 3.70% 3.69% 4.10%
Max 5.65% 5.87% 5.04% 5.09% 5.09% 5.24%

Based on investment loans available for $350,000, 80% LVR, and Principal & Interest repayments.

In terms of the investment premium, CANSTAR analysis has found that the difference in average home loan rate between owner-occupiers and investors is as follows:

Difference in average interest rate: Residential/Investment 20-03-2017
Stat Standard Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 5 Year Fixed
Avg Residential 4.47% 4.17% 4.08% 4.15% 4.57%
Avg Investor 4.72% 4.37% 4.29% 4.34% 4.74%
Difference 0.25% 0.20% 0.21% 0.19% 0.17%

Based on residential and investment loans available for $350,000, 80% LVR, and Principal & Interest repayments.

This difference equates to approximately one cash rate cut. It is worth noting, though, that there is a significant difference between the highest and lowest home loan rates on offer.

How to get a good value property investment home loan

If the higher interest rates on your investment property home loan are biting into your budget and your rental profit, there are things you can do:

Arm yourself with information about the current rates, fees, and features for investor home loans in our latest Home Loans Star Ratings report:

CANSTAR provides an information service. It is not a credit provider, and in giving you information about credit products, Canstar is not making any suggestion or recommendation to you about a particular product. If you decided to apply for a home loan, you will deal directly with a financial institution, and not with CANSTAR. Rates and product information should be confirmed with the relevant financial institution. Home Loans in the table include only products that are available for somebody borrowing 80% of the total loan amount.

Please see Canstar’s Financial Services and Credit Guide (FSCG) for more information, and read our detailed disclosure, important notes, and additional information.

Important Notes:

The Star Ratings in this table were awarded in March 2017. The search results do not include all providers and may not compare all features relevant to you. View the CANSTAR Home Loans Star Ratings Methodology and Report. The star rating shown is only one factor to take into account when considering products.

Feature image source: 2008 Getty Image.

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