The latest mortgage data from the Australian Bureau of Statistics (ABS) shows that investors have abandoned the market, with new mortgage commitments falling 35% year-on-year:
A new report from CoreLogic’s Head of Research, Eliza Owen, questions why investors have pulled back from the market when rents are rising at their fastest pace on record amid extreme rental tightness?
According to Owen, the main reason is because the Reserve Bank’s 10 consecutive interest rate hikes have driven mortgage repayments up more aggressively than the rise in rents, meaning many investors are bleeding cash.
“Using Australia’s median dwelling value and rent as an example, weekly rent values have gone from $455 to $564 between September 2020 and February 2023. Weekly payments on a variable-rate investment loan on the median dwelling value rose from $443 to $738 per week (Figure 2)”.
“In this scenario, the difference between weekly rent and a new investment mortgage repayment has gone from $11 at September 2020, to -$174 by February 2023”.
As expected, these rental losses are greatest in Sydney and Melbourne, where the median rental house loses $539 and $403 per week respectively:
The increase in rental losses also has implications for the federal budget.
The Australian Treasury’s annual Tax Benchmarks and Variations Statement projected $102 billion worth of negative gearing tax deductions over the next four years:
That is up from $73 billion over the prior four years.
