ABS data on new housing credit shows a rise in the value of home loan commitments, driven by owner-occupier lending.
Since bottoming out in May, the value of new owner-occupier home loan commitments is 17.3 per cent higher, according to Corelogic. The rise in value of owner-occupier housing finance over the September quarter, up 12.1 per cent, was the fastest quarter-on-quarter rise since 2015.
While lending to property investors has been subdued, the value of investment loan commitments was up 6 per cent over the September quarter.
Investors are currently tracking at 24.8 per cent of the value of new mortgage commitments, Corelogic’s head of research Tim Lawless says investors now comprise the lowest portion of housing loan commitments since the ABS records began in 2003.
“In contrast, shortly after the first round of macro-prudential rules were introduced in December 2014, investors comprised 43 per cent of national mortgage demand,” Lawless said.
The data shows mortgage activity is finally showing to pick up across Western Australia, with the value of owner-occupier lending up 15.8 per cent over the September quarter, and the value of investor loans up 24.1 per cent.
In New South Wales the value of owner-occupier loan commitments was up 12.3 per cent over the period, compared with a 3.3 per cent rise in investment.
“Although investment credit growth is slower, NSW has the largest concentration of investment activity across the states, with investors comprising 30.5 per cent of mortgage demand based on value,” Lawless said.
The value of owner-occupier home loan commitments was 11.3 per cent higher over the September quarter in Victoria, compared with a 10.6 per cent lift in lending to investors.
Victoria is home to the second largest concentration of investors, with 25.2 per cent of mortgage demand in September.
The value of investor loans in Queensland increased 12.5 per cent over the September quarter, compared with an 8.4 per cent lift in owner occupier lending.
Corelogic’s home value index shows national dwelling values bottomed out in June this year, the same month that housing credit started to rise.
“The improved credit flows have been supported by APRA’s decision to relax borrower serviceability rules, as well as the lowest mortgage rates since at least the 1950’s,” Lawless said.
Westpac loosens investor loan restrictions on interest only loans
Westpac is raising the maximum loan-to-valuation ratio (LVR) for interest-only loans to property investors to 90 per cent, from 80 per cent.
This move will allow property investors to take out interest-only loans with smaller deposits.
New interest-only loans to owner-occupiers will remain subject to an LVR cap of 80 per cent.
The bank’s general manager of home ownership Will Ranken told Domain that the “change will provide a competitive proposition for investors looking to purchase their next property.”
Since APRA removed the cap on the proportion of new interest-only lending Westpac haven’t been the only Bank in the Big Four to make a move like this.
Earlier this year ANZ also raised LVR limits for property investors with interest-only loans.
There have also been a series of rate cuts as banks bring their interest rate down in line with the recent cash rate cuts.
Bell Potter analyst TS Lim said banks would try to attract property investors now that property prices had bottomed, but he thought lenders would still be “pretty measured.”
“It’s an area where the banks are chasing market share. I think it’s going to grow, but not as quickly as before. People are still wary,” Mr Lim said.
RBA poised to cut rates further even as house prices surge
The Reserve Bank is poised to take official interest rates below 1 per cent even as evidence grows its previous rate cuts have supercharged the Sydney and Melbourne property markets with values growing eight times faster than inflation.
Economists from all major commercial banks believe the RBA will slice the cash rate to 0.75 per cent when it meets on Tuesday, following up its back-to-back rate cuts in June and July. If passed on in full, such a cut would save $55 a month on a $400,000, 30-year mortgage.
When the bank started cutting rates, there were some concerns that instead of boosting the jobs market, the move could power-up the property market.
CoreLogic’s daily measure of dwelling values suggests that is what has occurred.
Through the first four weeks of September, prices in Sydney were up by 1.6 per cent while in Melbourne they have climbed even more, up by 1.8 per cent.
Over the past three months, which includes the passing on of the June cut in official rates, Sydney and Melbourne dwelling values have jumped by almost 3.5 per cent or by more than 13.5 per cent at an annualised rate. Inflation over the past year has climbed by just 1.6 per cent.
Auction clearance rates have also lifted sharply, well above 70 per cent in both Sydney and Melbourne at the weekend although total properties put up for sale are still well down on the same period last year.
Bank governor Philip Lowe has played down concerns about the lift in dwelling values, saying the RBA is closely watching credit growth which has yet to show signs of strength. Last week, he also noted that the bank had to take into account movements in interest rates in other parts of the world.
If Australia failed to cut rates as other nations did so, this would put upward pressure on the currency.
Westpac chief economist Bill Evans, who believes the RBA will cut rates on Tuesday, said the Reserve was being driven towards easing monetary policy by the jobs market and what was occurring overseas.
He said since cutting rates, the unemployment rate had drifted up to 5.3 per cent as had the national under-employment rate while the global environment – with every major central bank easing monetary policy – had got tougher.
Last week’s speech bolstered the case for a cut by highlighting the global developments that are indicating the need for lower rates, he said.
While markets expect a rate cut on Tuesday, criticism about what it may achieve is growing. Last week former federal treasurer Peter Costello said structural reforms would achieve more for the economy than another reduction in rates.
The left-leaning Australia Institute, in research to be released on Monday, finds there is a growing risk that not all of a rate cut will be passed on to consumers as banks try to protect their bottom lines.
Senior research fellow David Richardson said banks will be loath to pass on another cut in rates and may look to tighter lending criteria to maintain their profit margins.
“Private banks control most of the lending in Australia, in this environment and in order to maintain their interest margins, banks are going to resist reducing lending rates,” he said.
Money floods back into property after back-to-back rate cuts
Banking regulators may have to tighten lending standards sooner than expected amid fresh signs the Reserve Bank of Australia’s back-to-back interest rate cuts have enticed investors back into the property market.
As Prime Minister Scott Morrison said the government and RBA governor Philip Lowe were working together to support the economy through a “complex” period, the Australian Bureau of Statistics reported a sharp lift in home lending through July.
The value of home loans in the month lifted 5.3 per cent, with gains across every state including a 5.4 per cent increase in NSW and a 3.4 per cent improvement in Victoria.
Investor lending excluding refinancing jumped 4.7 per cent, its strongest monthly gain since September 2016. Loans for construction slipped 1.6 per cent but there was a 10.7 per cent jump in those to buy newly built homes.
The increase followed interest rate cuts in June and July by the RBA, which has played down concerns that lower lending rates will reignite the property market.
ANZ economists Adelaide Timbrell and Felicity Emmett said as lending for housing and property prices had increased since the rate cuts, regulators were going to have to consider tightening lending standards.
“The RBA is unlikely to be impressed by these numbers. It would not want a repeat of the housing boom that we had prior to 2017, given already high levels of household debt,” they said.
“It is also conscious of the impact that strongly rising house prices have on inequality. If this sort of growth in housing finance persists, we expect the regulators would begin to consider macro-prudential controls sooner rather than later.”
BIS Oxford Economics economist Maree Kilroy said it appeared investors had reacted positively to the federal election result, interest rate cuts and the easing of lending standards by moving back into the market.
The data follows last week’s national accounts, which showed the economy growing at its slowest rate since the global financial crisis.
At the weekend, Dr Lowe told The Sydney Morning Herald and The Age that while there was limited capacity to do more infrastructure spending in Sydney and Melbourne, there was scope to do significant projects in other parts of the country or boost ongoing maintenance programs.
“Part of infrastructure investment is actually maintaining road, rail, bridges right across the country. It has the other advantage of making sure infrastructure spending is spread across the country and not just centralised in Sydney and Melbourne. There is capacity in some areas,” he said.
But Mr Morrison said the government and Dr Lowe were working together, saying the budget plan for a $100 billion, 10-year infrastructure plan was at the urging of the governor.
“I have been working with the Reserve Bank governor as both the treasurer and prime minister for four years. It is as a result of the Reserve Bank governor years ago, [his] suggestions to us about the need to move on infrastructure, that we have the $100 billion infrastructure pipeline that has been in the budget since April of this year and is featured in previous budgets,” he said.
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