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Wednesday, 31 May 2017

Data deluge!

Lending composition changes

A veritable heap of data out this week, so let's have a look at a couple of releases that relate to the housing market, in a very brief 60-second blog post.

Firstly, APRA's quarterly residential figures showed that interest-only loans have pulled back, but at more than 36 per cent of new residential loans they will still need to fall some way over the months ahead in order to get down to the 30 per cent supervisory cap. Plenty more work for lenders to do here to fall into line.

High loan to value ratio (LVR) lending, meanwhile, has fallen to the lowest level on record, with loans of above 90 per cent LVR down to just 7.7 per cent of new loans, having peaked at 21.3 per cent in December 2008. 

'Low-doc' loans, non-standard loans, and mortgages outside serviceability are now also tracking at historic lows of just 2.2 per cent of the market, despite a recent marked uptick in the writing of low-docs.

This all means that life has become very much tougher for first homebuyers, while home owners with equity have often been able to refinance 20 per cent deposits and buy more property in their stead. 

APRA's macroprudential measures appear to have changed the composition of lending, but the pace of mortgage growth hasn't been subdued to any great extent, with total outstanding residential ADI exposures passing $1.5 trillion in the March 2017 quarter.  

The average mortgage size outstanding rose to $259,000, up by 3.9 per cent from a year earlier, while the average balance for interest-only loans continued to track at considerably higher levels at $346,100. 

Of course, as has been widely reported, mortgage rates for investors with interest-only loans are consistently being tweaked higher, so there will likely be changes afoot to these figures.

Credit growth slows

The Reserve Bank of Australia (RBA) also released its Financial Aggregates figures for April 2017 today, which showed annual business credit growth slowing to a 35-month low of only 3.1 per cent. 

Housing lending is still humming along at 6.5 per cent annualised growth, however, while annual property investor credit growth rose to its highest level since January 2016 at 7.3 per cent.

Despite the strength of the housing lending sector, total credit growth slowed again to 4.9 per cent, the slowest annual pace since May 2014. 

All of which means that the total share of outstanding credit pertaining to housing hit another record high of 61.9 per cent.

The increasingly widespread use of offset and redraw facilities continues to see personal credit growth driven into negative territory, while some small businesses are also funded by 'housing' loans using existing equity.

The wrap

Some headaches apparent here for the Reserve Bank, with slowing credit growth and core inflation below target suggesting that interest rates should be cut in the normal course of things. 

The reason markets have not been pricing this outcome is clearly related to the composition of credit growth, which has been increasingly sucked into the housing market. 

As always, much more detailed coverage can be found in our subscription reports!