Australians still remain reluctant to borrow, unless it's to buy property

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Australian private sector credit slowed sharply in September, expanding at the weakest pace since January this year.

According to the Reserve Bank of Australia (RBA), credit grew by just 0.3%, well below the 0.5% levels in July and August.

From a year earlier, total credit expanded by 5.4%, unchanged from the level in the prior three months.

The report measures changes in the outstanding value of loans issued to Australia’s private sector.

The weakness in September was concentrated in business and personal lending, offsetting another modest increase for housing.

Source: CBA

In seasonally adjusted terms, business credit grew by just 0.1%, below the 0.4% level of August, seeing the increase on a year earlier slow from 4.8% to 4.3%.

Personal credit, after contracting 0.2% a month earlier, came in flat, leaving the annual decline unchanged at 1.0%.

Housing, on the other hand, continued to grow at a decent clip, lifting 0.5% over the month, the same level seen in August.

The increase saw the increase on a year earlier accelerate to 6.6% from 6.4%.

As the RBA has noted on several occasions this year, growth in housing credit continues to outpace that of household incomes, seeing overall leverage in the household sector increase.

“Housing credit growth is still growing well above income, something we doubt the RBA will be happy with from the perspective of its third policy mandate of ‘the economic prosperity and welfare of the people of Australia’,” said David Plank, Head of Australian economics at ANZ Bank.

Source: CBA

Within the housing figure, credit to owner occupiers grew by 0.5% over the month, leaving the increase on a year earlier unchanged at 6.3%.

Despite the unchanged annual rate, it currently sits at the equal highest level since December 2016.

In comparison, credit for housing investment grew by a smaller 0.4% over the month, seeing the annual pace slow to 7.2% from 7.3% in August.

It now sits at the lowest level since March this year, and below the 10% annual limit established by Australia’s banking regulator, APRA.

On those grounds it suggests that the regulator’s attempts to slow investor activity in the market is working, even if overall leverage in the household sector is still increasing.

“Credit to investors has slowed under the weight of the APRA lending guidelines which aim to reduce the financial system risks around the housing market,” said Michael Workman, senior economist at the Commonwealth Bank. “Investors face higher interest rates on interest only loans, higher deposits and tighter income tests from lenders.”

Henry St John, an economist at JP Morgan, expects that trend to continue.

“The tightening in macro-prudential policy, both by driving refinancing activity away from interest only loans, and more generally through slowing the pace of lending growth since early this year, is likely to continue to weigh on housing credit over the medium term,” he says.

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