IO curbs effective
In August 2017 I attempted to estimate the value and timing of forced interest-only ('IO') resets as a result of tighter lending standards.
Since that time many rational borrowers have elected to switch to principal and interest (P&I) loans to benefit from the more attractive mortgage rates on offer.
APRA's quarterly ADI figures showed that the flow of new IO loans was under 16 per cent for a second consecutive quarter.
This dynamic combination has had a marked impact on the stock value of outstanding IO loans, declining by $93.2 billion of 16.1 per cent year-on-year.
As a share of ADI residential term loan exposures IO loans have therefore been reduced to 31 per cent as at March 2018, well down from close to 39 per cent a year earlier.
Most borrowers appear to be handling the switch comfortably.
Those most impacted are likely to be portfolio investors, although many of this cohort built their portfolios over a long period of time, building equity and cashflow in doing so.
Some may have to sell a property or two in order to reduce debt.
The share of higher loan-to-value (LVR) ratio lending continued to tighten in the March quarter, having already declined considerably since 2014.
The latest figures relate to the first three months of 2018, so it's difficult to know whether the Royal Commission had any further impact over the following period through to June.
It's interesting to note that the major lenders have lost some market share over time.
Yet bank share prices saw a punchy rebound this week, possibly relating to a short squeeze, or more likely a pervading sense of relief as the media loses its appetite for daily stories from the Royal Commission.
