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INTEREST ONLY RATES TO RISE?

QBE: Interest-only investors rate to rise to 6.50%

by MPA | 26 Oct 2017

  • However, sub-5% rates will still be available to owner-occupiers, predicts 2020 Housing Outlook

    Interest rates for property investors will rise above 6% by 2020, a new report by QBE has predicted.

    QBE’s Australian Housing Outlook 2017-2020 predicts that interest-only investors will pay 6.50% for a standard variable rate, with those on principal & interest paying 6.05%. Both rates represent a 25 basis point rise from present levels.

    The report predicts a single increase in the cash rate to 1.75%, occurring in late 2019-20. Therefore rates for owner-occupiers will go up, but at lower levels than the cash rate: QBE estimate around 20 basis points, pushing the standard variable rate to 5.45%.

    Owner-occupiers could get lower rates, however. QBE’s report notes that “low-risk borrowers with a loan-to-value ratio below 80% can typically borrow at a significantly lower discounted rate. Published indicator rates by the Reserve Bank suggest a typical discount on the standard variable rate by the banks of 75 basis points.”

    No way out for investors

    Restrictions on lending to investors “are expected to be an increasingly prominent feature of the outlook for the market over 2017-18”, says QBE.

    Not only does the report predict a major slowdown in investor lending, it adds that “the resulting slowing price growth will further discourage investors.” Units prices, in particular, are predicted to fall nationwide.

    Even if investor demand was to strengthen, warns QBE, that would be met by further restrictions from APRA. Additionally “continued strong demand from foreign investors is likely to also be further discouraged by federal and state government policies.”

    APRA damaging the economy

    QBE predicts that APRA’s restrictions could cause real harm to the economy, as many brokers have warned.

    “New dwelling commencements have now started to fall and will be a drag on the economy, adding to the weakening mining investment” notes the report. The unemployment rate is forecast to drift up to 6% and remain at this elevated level until mid-late 2019 when dwelling construction and mining investment bottom out.”

    Owner-occupier demand will weaken, QBE predicts, reflecting the weaker economy.