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Investor finance broking specialist Mansour Soltani (pictured), director at Soren Financial in Sydney, said he is seeing some evidence of ‘panic’ among investor clients after this week’s increase in interest rates.
The RBA moved to raise the cash rate to 4.1% on Tuesday, with RBA governor Philip Lowe later citing ‘upside surprises’ in local inflation, housing prices, wages and inflation overseas as decision drivers.
The increase in rates for the 12th time since May 2022 now means the cash rate has jumped by 3.75% in little over a year, leaving some property investors exposed as well as owner-occupiers.
Soltani said he had been “fielding phone calls from people since Tuesday afternoon”, with investor clients wanting to know what their options are, whether that is refinancing or selling properties.
“People are looking at the viability of their investments now a lot more strategically – although in my business I am obviously advising people all the time to do that anyway,” he said.
“For someone with a portfolio of three or four investment properties, you are looking at that latest one right now and asking is it going to yield me a return at these high rates – or do I flick it?” he said.
“Anecdotally, I can say there is definitely a lot of panic. I’m seeing a lot of situations like that.”
Soltani said the greatest impact was being felt by investors who have gone deeper into debt.
“It’s always the ones who are highly leveraged,” he said. “This week alone I’ve taken calls from three or four clients or potential clients who are calling me to see if they can refinance - and they can’t.
“They’ve been among those who have taken out loans when interest rates were at 1.98%, and now they are in the 6’s – and it’s just not viable for them to be able to refinance.”
He gave the example of a lead that was on a PAYG salary of $105k but was $1.5 million in debt.
“He had no business having that sort of debt on his salary. I had to say, ‘mate, there is no way you are going to be able to refinance’. He will probably have to sweat it out, or dump properties,” Soltani said.
He added that he was expecting this would result in more properties coming on to the market.
“It I look at our clients, and a lot are considering this at the moment, I think that it must be going on across the country, so I think we are likely to see an influx of stock on the market,” he said.
Soren Financial’s business a year ago was split between about 95% property purchases and 5% refinance deals, but Soltani said that has flipped to 95% refinance deals and only 5% purchases.
Soltani launched Soren Financial three and a half years ago. Aged 44, he has been investing in property himself since 22 and said he has been through cycles that have included the GFC.
At Soren Financial, he comes across a lot of investment information and deals that are going on out in the market, but Soltani said when he does the numbers, “just don’t stack up”.
He gave the example of residential apartment buildings having remedial works to external cladding, and one in particular in Sydney that will see one bed units hit with a special levy of $120k.
“If it is a one bedder and is supposed to be worth $750k, that’s fine, but go and try and sell it – chances are people will not pay $750k for it – you might get $600k, or even $580k,” he said.
“The price of strata is doubling for 10 years. It’s not a viable investment, once you factor in things like rental yield and strata. It might be better off putting it in a term deposit for 4.5%.”
He said landlords putting up rent cannot come anywhere close to recouping the difference to their new mortgage payments, and can only put prices up because of the lack of stock on the market.
Soltani said the main factor he sees leading people to make bad investment decisions is ego.
“The barrier to entry for investment property is low. All you need is a job and a deposit,” he said.
“When you’re at a BBQ, and you hear your friend has just bought and flipped a property and made a couple of hundred grand, people don’t always realise a lot of that was just timing and luck. You can do that, but not always. Some people are lucky and some aren’t.”
Soltani gives the example of his own investment in a brand new apartment in Glebe for $630k in 2004, which he sold in 2010 for the same price. “You don’t hear these types of stories in the paper.”
He said buying well means deeper analysis to ensure clients are investing in good locations, and seeing large, diverse property markets like Sydney as “50 markets, rather than just one market.”
That’s why people should use a broker, he said.
“The reality is an average person who has a mortgage does not understand how money works and would be better off having a professional to assist them. It’s the knowledge sharing and experience brokers have with home loan products and things like how lenders charge interest,” he said.
Soltani said that, while now is a difficult time in the cycle for investors, particularly those carrying a lot of debt, in a couple of years things could look very different. “It’s the circle of life,” he said.
