"Investor lending surged to record highs in September, driven by favourable market conditions and falling borrowing costs, signalling a strong return of property investors to the market." - Michael Jones, Senior Financial Strategist
New data released on Wednesday by the Australian Bureau of Statistics (ABS) revealed new investor dwelling loan commitments rose 13.6% to 57,624 in the three months to September.
This is the highest since March quarter 2022.
The new investment loans approved in the quarter totalled $39.8 billion, up 17.6% ($6 billion) versus the previous three-month period.
"Both the number and the value of new investment loans reached record highs in September, said Dr Mish Tan, ABS head of finance statistics.
According to ABS, the current "favourable" market conditions have driven this surge in investment lending.
"Falling borrowing costs and low vacancy rates are favourable conditions for investors," Dr Tan said.
Property investors are borrowing more, with the average loan size rising by $11,686 to $685,634.
By contrast, owner-occupier loans increased a modest 2% on a quarterly basis, while first home buyers' were up just 2.3%.
However, the latest data does not take in the period since the launch of the expanded 5% Deposit Scheme.
Investors have been returning to the market in force since March 2023, with investment loans reaching around 40% of the total number of new loans, per the ABS.
"This is a clear sign that financial conditions may not be as tight as we thought and shows that interest rate cuts are working their way through the economy," said Ashwin Clarke, senior economist at the Commonwealth Bank of Australia (CBA).
The Reserve Bank of Australia (RBA) recently noted that investor credit growth was at its fastest pace since 2015, picking up even before the central bank began easing monetary policy in February this year.
While investor activity is strong, economists noted it remains below the highs seen in the mid-2010s when regulators stepped in to put the brakes on landlord lending.
The surge in investor lending in 2014 prompted the Australian Prudential Regulation Authority (APRA) to stop banks from achieving annual growth of more than 10% in investor loans.
Fresh ABS data showed investor lending is rising at nearly double that rate.
Should regulators intervene, Cotality foresees it could drag down home prices like it did in the mid-2010s.
Home prices across Australia increased at their fastest pace since May 2023, up 1.1% in October, according to Cotality's recent data.
Since the first rate cut in February, monthly gains had been accelerating, with the median home values across the combined capital cities rising $53,700.
Investment loans increased across all states and territories, led by New South Wales (up 19%) and Victoria (up 18.5%).
Owner occupiers are also flocking to both states as residential loans approved were also highest in NSW (up 4.9%) and VIC (up 2.4%) in the September quarter.
The total value of owner-occupier loans rose 4.7% ($2.6 billion) over the three months to September.
Source: Your Investment Property Magazine