Tighter lending regulations and rising bank
interest rates have caused a slowdown in property investment across Australia.
While investors still represent a healthy share of new property lending, the
value of owner-occupier commitments is growing as the market finds a new
balance. First home buyers are also storming back into the market, with the
value of investor loans forecast to shrink over coming months as other segments
of the market put down their stake.
According to data from the Australian
Bureau of Statistics, the value of investor loans decreased by 1.4% in May,
after falling by 2.5% in April. The slowdown in lending followed a second round
of tougher lending restrictions imposed by the Australian Prudential Regulation
Authority (APRA) in March, measures which limited interest-only loans to 30% of
new residential mortgages. The banks started raising interest rates in response
to tighter lending rules, with the spread between principal-and-interest loans
and interest-only loans, favoured by investors, widening to between 45 and 60
basis points over the period.
The tough new limits imposed by APRA were
designed to reduce risk in the sector by going beyond the existing 10% investor
loan growth "speed limit". "APRA views a higher proportion of
interest-only lending in the current environment to be indicative of a higher
risk profile," said APRA chairman Wayne Byres in a statement, adding
"We will therefore be monitoring the share of interest-only lending within
total new mortgage lending for each lender, and will consider the need to
impose additional requirements... when the proportion of new lending on
interest-only terms exceeds 30% of total new mortgage lending."
Investor lending declined from more than
40% of market share at the start of the year to 37.3% in May. While this
represents a significant decrease, especially in NSW and Victoria, levels are
forecast to drop much further in coming months. According to Henry St John from
JP Morgan, investor lending has contracted at an annualised pace of almost 15% over
the last six months, after having grown by more than 26% in January. "Our
view is that investor lending values will continue to shrink in the coming
months, and that this will begin to materialise in investor credit growth as
well," he said.
Despite a slowdown in investment activity,
total mortgage lending still managed to rise by 1.3% in May, or $33 billion.
Owner-occupier lending has grown for the fourth consecutive month, with the
value of loans up 2.9%. Refinancing loans were also up by almost 3% for the
month, to an annualised pace of 6.9%. According to Mr St John, this may mean
that "investors are rediscovering themselves as owner-occupiers following
comparative changes in market lending rates." The number of first home
buyers in the market is also up, with new property owners now accounting for
14% of total mortgage commitments, up from 13.8% in April. According to
economist Stephen Koukoulas, 8,439 first home buyers took out loans in May, the
biggest number in two-and-a-half years.
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