Overall Housing Credit Growth Lower Due To Fewer Loans To Investors
The latest data from the Reserve Bank (RBA) shows that the expansion of housing credit is occurring at a historically sluggish pace as tighter credit policies and slower housing market conditions dampen investment participation in the housing market.
The RBA releases its financial aggregates on the last working day of each month and it provides valuable insight into outstanding credit to all mortgage lenders in Australia.
The latest data shows that in January 2018, housing credit expanded by 0.5% which was actually greater than the 0.4% expansion the previous month. Splitting the data by owner occupier and investors, owner occupier credit expanded by 0.6% compared to 0.2% for investors.
The first chart shows the monthly change in housing credit for owner occupiers and investors, while owner occupier credit expansion is tracked fairly steady, there is a clear slowing of credit expansion to investors currently. The slowdown is being fueled by switching of investor loans to owner occupier and macroprudential policies which limit credit growth to investors.
The macroprudential policies have come in two waves, the first wave limited lenders from growing investor credit by more than 10%pa while the second wave limited new interest-only lending (which is largely utilised by investors) to 30% of new originations. The first chart suggests that the first wave actually tightened investor credit growth more than the second wave, highlighted by the fact that in December 2015 investor credit recorded no change while the slowest rate of expansion since the second wave of policies has been 0.2% which is not as severe of a slowdown as that experienced following the first wave of macroprudential policies.
The second chart focusses on the annual change in housing credit and shows the benchmark for the 10% speed limit for investor lending which was introduced by APRA in late 2014. This chart also highlights a relatively steady expansion in owner occupier credit but a slowing expansion of investor credit.
At the end of January 2018, the total value of outstanding housing credit was $1.731 trillion which was an historic high. As a share of the total value of credit outstanding to lenders, residential housing accounts for a record-high 62.0%. The data shows a clear preference for lending for residential housing over recent years especially when you consider at the end of 2007, just prior to the GFC, housing accounted for a much lower 51.9% of total outstanding credit.
The fourth chart highlights outstanding investor credit as a share of total outstanding housing credit. In January 2018, outstanding credit to investors was recorded at $587.9 billion which represented 34.0% of total housing credit. Although investors make up a significant proportion of outstanding credit, as a share investor credit has been falling since its peak of 38.7% in June 2015. In fact, the share of credit to investors is at its lowest level since May 2013.
Based on the most recent data from APRA, Australian lenders have comprehensively met the macroprudential targets for investment credit growth and interest only lending. Considering annual investment credit growth, at 3.0%, continues to track well under the 10% speed limit and interest only lending is also well under the 30% benchmark, it’s possible investment credit growth could lift over coming months.
Investors do face other headwinds though, with capital gains cooling, yields tracking well below average and depreciation benefits less appealing since the federal government budget last year.
Overall, the expansion in housing credit is now largely being driven by the owner occupier segment of the market. With mortgage rates expected to rise some time over the next two years and dwelling values falling, it will be interesting to see how long the steady expansion in owner occupier credit can last.
Senior Research Analyst, CoreLogic
Cameron specialises in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spatial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors.
Published: 5 March 2018