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As rate cuts make it more affordable to borrow money, it has motivated investors to pay back their mortgage faster.
This year, the Reserve Bank of Australia has halved interest rates, which currently sits at 0.75 of a percentage point.
This put fuel on the property market and contributed to its comeback in many regions since the federal election.
However, not all investors are taking this moment as a chance to grow their portfolio or find a new home, but they are putting their extra cash towards their mortgage.
“Investors with variable mortgages have seen interest rates tumble by 1 to 2 percentage points over the past year,” Your Property Your Wealth director Daniel Walsh said.
“Some investors have also opted to refinance now that the lending environment is more favourable to them, which has resulted in their repayments dropping even more.
“Rather than frivolously spending that extra cash flow, many investors are opting to pay down their debt.”
This tactical decision by property owners was not surprising to Mr Walsh, given the urban myth that negative gearing was an “investment strategy”, with most portfolios becoming neutral or positively geared within a few years.
“In fact, the 2019 PIPA Investor Sentiment Survey found that 52 per cent of investors expected to be positively geared within five years,” he said.
“What’s interesting is that the research was conducted before one of the recent rate cuts, so that time frame is likely to be dramatically shortened.”
This is a strategic decision Mr Walsh has done with his investment property.
He has a $4 million, nine-strong property portfolio that has $2 million in equity with his wife, Sophie.
He recently refinanced his portfolio, which gave him an extra $9,000 in cash flow to pay down their borrowings. It also increased their passive income to $68,000 per year.
“We are using those extra funds to pay down our portfolio, which at the end of the day is the goal for all investors,” he said.
“Of course, buying strategically located properties will increase your chances of solid future capital growth.
“However, the debt does need to be repaid at some point and the current lending conditions as well as low interest rate environment makes the timing perfect for investors, like us, to do just that.”
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