The nation’s banking regulator is under pressure to clamp down on loans to investors, taking speed out of the property market and the entire economy, as new figures show speculators are pushing up prices for entry-level homes sought by first-time buyers.
As dwelling values across the country lifted by another 0.8 per cent through February, despite staying flat in Sydney and Melbourne where more homes going to market, one of the nation’s top economists said last month’s interest-rate increase could have been averted if regulators had clamped down on investor lending.
The Reserve sets interest rates in a bid to keep inflation between 2 and 3 per cent while keeping as many people in work as possible, but the Australian Prudential Regulation Authority is responsible for stability across the banking sector.
On February 1, APRA started new rules set for banks that mean no more than 20 per cent of their new lending can flow to people borrowing six times their income or more. The restrictions apply to both investors and owner-occupiers.
This change was not expected to have a substantial impact on investors, after APRA admitted few major lenders would be caught by a move that was described as a “pre-emptive” step against a drop in lending standards.
Figures released on Friday by the RBA showed creditor growth to property investors increasing to its fastest pace since late 2015, rising 8.9 per cent over the past 12 months. A year ago, ahead of the Reserve Bank’s interest-rate cuts, lending to property investors was growing at 5.3 per cent.
By contrast, credit growth to owner-occupiers has lifted over the same period from 5.7 per cent to 6.1 per cent, pointing to the huge step-up in loans going to investors.
In the final three months of 2025, investors took out a record 50,449 mortgages to buy an existing property.
Since the RBA started cutting rates in February last year and December, the number of loans taken out by investors to buy an existing home has soared by 25 per cent. The number of mortgages taken out by first-time buyers lifted by 11 per cent over the same period.
Independent economist Saul Eslake said the way investors had reacted to last year’s rate cuts was clearly a problem for the Reserve Bank and its efforts to keep inflation under control.
He said if APRA had taken stronger action, such as in 2017 when it limited interest-only loans, which are almost exclusively used by investors, then the RBA may not have had to tighten monetary policy.
“If APRA had done that, then the increase in interest rates may have been averted,” he told this masthead.
Concern about the way investor lending is surging is growing within the Reserve Bank.
In the minutes of its meeting at which it lifted official interest rates by a quarter percentage point, the RBA noted that housing credit had “picked up noticeably” and was being driven by a “pick-up in investor credit”.
In its most recent monetary policy statement, the bank said that the lift in overall housing credit largely reflected “stronger investor growth”.
“Owner-occupier credit growth [which comprises two-thirds of overall housing credit] has also increased, but by much less than investor credit growth,” it found.
A key problem for the Reserve Bank is that lower interest rates often feed into higher property prices. This in turn makes homeowners feel wealthier, which supports an increase in spending.
Last week, the bank’s head of economic analysis, Michael Plumb, noted that “stronger-than-expected real household incomes and wealth” had contributed to the unexpected lift in household spending through the second half of 2025.
That wealth increase was driven by property prices. In the 12 months to the end of September, the value of Australian homes soared by $875 billion to a record $12 trillion.
The issue is connected to the demands for changes to the 50 per cent concession on capital-gains tax and the way that helps investors compete against first-time buyers for limited, affordable properties.
Former Treasury secretary Ken Henry last week told a Senate inquiry into the tax how it had personally affected his family, arguing the concession had to change.
“There would be tens of thousands, if not hundreds of thousands if not millions of parents in Australia who could tell the same story – stories of standing at an auction, seeing their kids – potential owner-occupiers – being out-bid by investors,” he said.
Data from Cotality released on Monday suggested investors are a key driver of the recent lift in prices.
It reported that Perth and Brisbane property markets continue to surge with dwelling values in the cities lifting by 2.3 per cent and 1.6 per cent respectively in February. Perth’s median house value has jumped by more than a fifth over the past 12 months to $1.03 million, while in Brisbane they have lifted by 16.7 per cent to $1.175 million.
But in Sydney and Melbourne, house values eased by 0.2 per cent last month. Both have dropped by 0.4 per cent over the past three months, with Cotality noting the number of homes for sale in the two cities through February increased sharply.
Cotality’s research director Tim Lawless said demand for affordable homes continued to be strong. In Sydney alone, values for the city’s cheapest homes increased by 0.8 per cent, but they fell by 0.9 per cent among the most expensive.
Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.