The average owner occupier variable home loan rate is currently 5.51% p.a. while investor loans are at an average 5.69% p.a., according to the latest Reserve Bank of Australia (RBA) data.
See also: Home loans by the numbers: Mortgage statistics in Australia
The 18-basis point gap represents a 3.2% [percent, not percentage points] difference between the two, the narrowest margin of the RBA's current data set, dating back to 2019, as illustrated below:
Source: RBA official data
The gap between average variable owner occupier and investor interest rates has been steadily narrowing since the difference between them peaked at 12.4% in April 2022.
However, the percentage gulf dropped to single figures by mid-2022, around the time of the RBA's hike to the cash rate in May 2022, marking the beginning of the last rates upcycle.
See also: Current interest rates Australia
Amid the ensuing steep rises and current rates downcycle, the gap between variable owner occupier and investor home loan rates has continued to narrow, as illustrated by the green and blue lines below:
Investor lending near record levels
The relatively lower rates being offered to investors has coincided with investor lending reaching near record levels.
According to the latest data, new investor lending is close to its highest share of the home loan market since 2017.
Last week, a PropTrack report attributed the upswing in investor activity to falling interest rates and a continuing tight rental market which has seen a lift in gross rental yields.
The report found investors are particularly active in inner-city Sydney and Melbourne markets as well as more affordable outer suburbs and satellite hubs to major cities.
Are regulators watching?
The last time investor lending reached such heights, the regulator APRA stepped in to curb lenders from achieving more than 10% annual growth in investor loans.
The cap was applied on ADIs in 2014 after APRA became concerned heightened investor lending exposed the financial system to greater risk.
In 2017, the move was followed by another limit on interest only (IO) lending, often favoured by investors looking to maximise tax benefits.
At the time, both moves were broadly supported by other financial regulators, the RBA, and Australian Treasury which recognised that the housing market upswing heightened the risk of a subsequent economic downturn on the back of rising debt levels.
APRA later removed the limits in April 2018, conditional on bank boards providing assurance of ongoing safe lending practices.
Since that time, Australia's lending policies have tightened considerably although it remains to be seen whether regulators are concerned at similar levels of new investor lending.
Recent APRA communications have hinted it may consider applying the brakes again should credit growth rise to more unsustainable levels.
Why are investor home loans considered higher risk?
Historically in Australia, investor home loans are considered riskier than owner occupier lending.
APRA typically requires banks to hold larger proportionate cash buffers for investment loans than for owner occupier loans to account for any headwinds.
This increased cost to lenders is part of the reason investor interest rates are generally higher.
Lenders also view owner occupiers as more committed to keeping their homes than investors who are more likely to sell or walk away from a negatively geared property should they face financial difficulty.
Historical lending data shows investor loans tend to have slightly higher arrears rates than owner occupier loans.
But that doesn't deter investors from looking to the property market, particularly when it is offering both good capital growth prospects and rental returns.
This has generally been the case in most markets nationally, fuelled in part by the ongoing housing supply shortage.
Competition in the investor home loan market
A few smaller lenders are currently offering the same, or near similar, variable rates to both owner occupiers and investors in a bid to lure new business.
Horizon Bank has one of the lowest variable investor rates at 5.24% p.a. (5.24% comparison rate*) but this is limited to a seemingly small pool of first home buyer investors making principal and interest repayments and with up to 70% loan-to-value ratio (LVR).
See also: What is rentvesting and is it a good idea?
The rate climbs to 5.39% p.a. (6.09% p.a. comparison rate*) for investors who are not first home buyers meeting the same conditions.
This rate also includes a 0.60% honeymoon discount for two years.
See also: Honeymoon Introductory Rate Loan Calculator
Not just small lenders going hard
CommBank's online lender Unloan is currently offering a variable investment home loan rate of 5.44% p.a. (5.35% p.a. comparison rate*) for new borrowers with up to 80% LVR.
The rate climbs to 5.74% p.a. (5.65% p.a. comparison rate*) for investors with up to 90% LVR.
On Wednesday, online lender loans.com.au made a considerable cut to its Investor Package home loan rates for existing owner occupier borrowers looking to add an investor loan of up to 80% LVR.
The new P&I rate is 5.49% p.a. (5.53% p.a. comparison rate*) while for investors wanting to make interest only (IO) repayments, the rate is 5.69% p.a., a 24 basis point cut on the old rate.
Meantime, investors looking for fixed rates may find some under 5% p.a. depending on their circumstances.
See also: Which home loans offer interest rates below 5%?
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Buying an investment property or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for investors.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.24% p.a. | 6.28% p.a. | $3,075 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
6.04% p.a. | 5.95% p.a. | $3,011 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
6.14% p.a. | 6.16% p.a. | $3,043 | Principal & Interest | Variable | $0 | $350 | 60% |
