Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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Saturday, 4 March 2017

APRA reports non-performing loans on the rise

Housing rise to $1.5 trillion & beyond

APRA reported that residential housing loan ADI exposures continued to power on, up to $1.49 trillion in the December quarter (and beyond $1.5 trillion in January). 

Owner-occupied loans totalled $971 billion, comprising 65 per cent of outstanding residential property exposures, an increase of $86.5 billion or 9.8 per cent from the prior year.

Meanwhile, the total of outstanding investor loans was $522.4 billion (the balancing 35 per cent of outstanding exposures), for an increase of $23.5 billion or 4.7 per cent from last year.

New investment loan approvals were down by 5.8 per cent from the prior year, yet still accounted for a punchy 34.2 per cent of total new residential loans. 

Loans to investors appear very likely to be the target of a crackdown as 2017 rolls on.

As I looked at in a little more detail here, each of the major lenders appear likely to be approaching the speed limit for the growth in their mortgage books, including those that have lodged revisions to historical figures (since these will be adjusted for). 



Impairment rise for ADIs

I'm not going to provide much detailed analysis or opinion on this site, but it is worth noting the following from APRA's reported headline figures for ADIs.

-impaired facilities and past due items as a proportion of gross loans and advances was 0.92 per cent as at Q4 2016 (an increase from 0.86 per cent in the prior year);

-specific provisions hit $7.3 billion at Q4 2016, an increase of $0.8 billion or 12.9 per cent from the prior year; and

-specific provisions as a proportion of gross loans and advances was 0.24 per cent at Q4 2016, an increase from 0.22 per cent in the prior year.

To summarise:


Source: APRA 

This should demand your attention, since it indicates that the cyclical low for impairments has now passed. 

Change to new lending

APRA's figures show that riskier "low doc" and other non-standard lending now comprise only a small and decreasing share of the residential mortgage market, which is a positive development.

Furthermore, most new loans have a loan to value ratio (LVR) of 80 per cent or lower, meaning that - theoretically at least - the majority of new buyers have a significant buffer built in to their purchase. 


A potential challenge to this case is that in many instances those using 20 per cent deposits have likely sourced their deposits from existing residential property assets, and therefore the risk in such loans may be higher than it appears at first blush. 

Interest-only loans, while accounting for a smaller share of the market than has previously been the case, still represent a very significant chunk of new lending at 36.6 per cent (even if the total of interest-only lending for the quarter of $162 billion represents a decrease of 10.5 per cent from the prior year).


The inherent risk here is that when these loans reach the end of their interest-only period the repayments may jump higher in the event that the loan cannot be rolled over into a new interest-only period, a point which has aroused the scrutiny of short sellers.

Summarily, residential property exposures now comprise a very significant sum of interest-only mortgages in Australia. 


Source: APRA

If mortgage rates were to rise, of course, then these risks may be multiplied. 

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