IO lending plummets
The flow of new interest-only (IO) loans was only 16 per cent of new residential term loans in the September 2018 quarter.
While IO mortgages are still an option for some borrowers, the terms are often less attractive, and with the lending slowdown there is also now a smaller denominator, so flows are now very considerably softer than they were.
With many borrowers also having voluntarily switched to paying down mortgage debt, IO loans were down to 27 per cent of residential loans by value by the end of September quarter, and will be closer to just ¼ today in December.
The chart here only goes back to March 2008, but the stock has never been so low in percentage terms.
Many of the outstanding IO loans were written under tighter serviceability assessments, while those on IO loans for a longer period probably have a reasonable amount of equity.
High LVR lending is the lowest on record, at just 6½ per cent of approvals with an LVR of 90 per cent or greater, down from 22 per cent at the 2009 peak.
Low-doc lending is also the lowest on record at just $196 million in the September 2018 quarter, down from $6.4 billion at the peak, which is a remarkable measure of just how far things have come.
Finally loans approved outside serviceability fell sharply, and gross loans impaired and past due remained low for ADIs at 0.84 per cent.
The wrap
The value of lending to investors was at the lowest level in about half a decade over the past quarter, despite the strong population increase over that time.
Reserve Bank reports and speeches seem to oscillate between playing down housing market risks and conceding that there is no handle on what the 'right' amount of leverage is, hence the focus has been on the quality of lending.
As all of the statistics quoted above show lending standards have been incrementally tightened for some years.
What happens next is unclear.
It's hard to get a handle on timing, but the most recently available figures for rental vacancies showed vacancy rates nationally at their lowest level since 2014, as we head into the festive period.
Source: SQM Research
There are now fewer homebuyers, and therefore more renters - thus with lending to investors stagnant and lending to non-residents having evaporated this would/should ultimately be reflected in rental market tightening once Sydney and Melbourne have worked through the current swathe of completions.
As noted previously:
'Although absolute population growth is strongest in Sydney and Melbourne, these cities also have an overhang of off-the-plan settlements to cushion any such shock to the rental market, at least for the time being.
For that reason the first reports of a 'rental crisis' are more likely to emerge in smaller capital cities such as Hobart, Canberra, and perhaps Adelaide.
And regional locations such as the Hunter Valley, Coffs Harbour, Wagga, Bowral, and Dubbo in New South Wales, then Ballarat, Shepparton, Warrnambool, and Mildura in Victoria, and so on.
Even some of the basket case resources regions could be heading towards renewed rental shortages as once-bitten investors remain spooked away.'
