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The Lure Of Low Interest Rates

It’s pretty clear that ongoing record low mortgage rates, along with the temporary removal of the Reserve Bank’s LVRs, are encouraging investors into the market.

By: Property Investor Team

1 October 2020

That’s according to CoreLogic senior property economist Kelvin Davidson. He says CoreLogic’s latest Buyer Classification data shows a continued appetite for property from mortgaged investors, who accounted for 26% of property purchases nationally in July and August combined.

While this continues their rising trend of the past few years, it’s not hard to find current reasons for this. “Low and falling interest rates on term deposits are causing them to look for yields elsewhere; it’s cheap to borrow; and the temporary removal of the LVR speed limits has allowed more investors to enter the market with less than a
30% deposit.”

Digging a little deeper into the mortgaged investor category reveals the real impetus for the overall rise in mortgaged investors’ market share has recently come from smaller players with two properties, Davidson adds.

“It seems fair to suggest that these smaller players will be the ones most likely to have ditched a term deposit in favour of property.”
CoreLogic’s data also shows that first home buyers are maintaining a historically high market share of purchases, while would-be movers are sitting tight rather than relocating.

Meanwhile, the latest joint survey from REINZ and economist Tony Alexander also suggests interest rates are the key to the resurgence of investor activity. While bargain hopes may have encouraged many investors into the market during the lockdown, those hopes are diminishing month by month, REINZ and Alexander say.

“Instead the strongest factor driving investors towards property is now low interest rates, with this factor cited by a gross 76% of agents, up from 68% last month.

“This strengthening may reflect comments from the Reserve Bank regarding the potential for lower interest rates next year, along with the continuing reduction in bank term deposit rates.”


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