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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Friday, 9 October 2015

Housing finance surprise

Home loans rip

A surprise result for Housing Finance in August with a jump in both the number (+2.9 per cent) and particularly the dollar value (+6.1 per cent) of owner-occupier commitments written.

With more than 55,600 home loans recorded in the month, at face value this was the strongest result for owner-occupier lending since all the way back in Q3 2009.


As noted here previously the Reserve Bank Governor had predicted that APRA's crackdown would see a shift in lending towards owner-occupiers, and on this evidence it appears that he was at least partly right.

There was also a solid rise in lending for new housing in the month.

Bogus result

However, the figures for total lending jumped by such a margin that something doesn't quite seem to stack up.

It appears likely that the aggregate data may have been skewed northwards to an unknown extent this month, with lenders having repriced investment loans further above owner-occupier rates.

Where a borrower with an existing investment loan has consequently persuaded a lender to reclassify it to a home loan, this may have been recorded as "new lending", and not refinancing (h/t UBS, h/t Dr. Chris Caton, BT Financial Group).

And so, therefore, it seems that at least a small portion of the "growth" in lending in August was bogus.

Given this anomaly it makes sense to attribute more weight to growth in the stock of outstanding credit and the Reserve Bank's Financial Aggregates data, which I analysed here last week.

Total lending rises

While we may argue the toss over loan classification between investors and owner-occupiers, home lending did appear to gather some pace in August, with a huge surge in total lending to $34.3 billion.

This was by far the greatest figure on record attributed to any month of lending, and an annual increase of more than 20 per cent.

Crackdown on investor lending or no, with mortgage rates at such low levels it appears that folk are still finding ways to borrow, and banks are still finding ways to lend.

Liaison with mortgage brokers has suggested that this strong level of activity may carry right through until Christmas.


The data now shows that monthly investor lending peaked at $14.2 billion all the way back in April this year, and has been tracking lower at around $13.6 billion per month since that time. 

However, owner-occupier lending has reportedly surged more than +26 per cent higher over that time to a new high of $20.8 billion - excessively strong numbers which just don't "feel" right - while the rolling annual value of lending also surged to a record high of $379 billion.


In short, the market which was previously driven by investors is now being increasingly dominated by home buyers.

State versus state

Ex-refinancing the main monthly gains in owner-occupier approvals in August were to be found in New South Wales (+9.5 per cent), Victoria (+9 per cent), Western Australia (+7.5 per cent), and Queensland (+3.7 per cent), with South Australia recording a mire moderate +2.3 per cent rise.

In dollar value terms, the state level data revealed an enormous ramp up in home lending in New South Wales and Victoria with all previous monthly records shattered.

On this evidence, plenty of refinancing took place in Sydney and Melbourne.


There was also a cheeky uplift in home lending in South Australia in August.

In New South Wales more than $7.5 billion of owner-occupier commitments were written in the month, a crazy +44 per cent increase year-on-year, which must surely be an overstatement. 


The wrap

Monday's Lending Finance data will shed more light on investor lending, and to what extent investors have rotated away from the hot Sydney market towards Brisbane or elsewhere.

I looked at the previous month's result here.

Overall, this was an apparently huge result - indeed, the greatest ever month of housing finance lending - but one which may temper over the next month or two given the potential loan reclassification issues noted above.

In the meantime, it is probably prudent to pay more heed to the Reserve Bank's credit aggregates than total housing finance data.