Australian home loan lending hits a record high as investors stage a comeback

‘The Block’ Auction Day. Photo: Patrick Riviere/ Getty Images.

The value of Australian home loan lending jumped to the highest level on record in August, driven by a spike in loans to investors.

According to the Australian Bureau of Statistics (ABS), housing finance jumped by 2.1% to $33.9 billion in seasonally adjusted terms, surpassing the previous record peak of $33.75 billion set in January this year.

From a year earlier, the value of total housing finance rose by 8%, up from 3.8% in July.

In what will no doubt raise eyebrows at the Reserve Bank of Australia (RBA) and Australian’s banking regulator, APRA, the value of investor housing finance surged by 4.3% to $12.633 billion over the month.

That was the largest monthly total since March this year, and the greatest in percentage terms since November 2016.

It also left lending to investors up 6.5% from a year earlier, a sharp rebound following flat growth in the 12 months to June.

While only one month’s figures, the rebound casts doubt as to whether attempts to slow down investor activity through tighter macroprudential measures are working.

“APRA data for 2Q showed banks making progress in reducing interest-only loans, though measures to date do not appear sufficient to slow credit growth in line with income growth, per the regulators’ desire,” said Henry St John, economist at JP Morgan.

“The RBA may have more to say about this in tomorrow’s Financial Stability Review,” he says, adding that “the trend in investor lending growth will be closely monitored by the regulators”.

In it’s October monetary policy statement, the RBA noted that “growth in housing debt has been outpacing the slow growth in household incomes for some time”.

In comparison to the surge in investor finance, lending to owner-occupiers rose by a smaller 0.9% to $21.265 billion over the same period.

Within that figure, lending excluding refinancing stood at $15.225 billion, up fractionally on the level reported in July. In dollar terms that was a record high, and up a massive 17.6% on 12 months earlier

Explaining the increase in lending to this category during August, refinancing of owner-occupier facilities rose by 3.3% to $6.04 billion. Despite that increase, the value of refinancing still fell 8.1% from a year earlier.

With the strong increase reported in August, it left the total outstanding balance of loans issued by Australian authorised deposit taking institutions (ADIs) at $1.611 trillion in unadjusted terms, the highest level on record.

Outstanding owner-occupier loans currently stand at $1.053 trillion while those to investors sit at $557.8 billion. Both are record highs.

Mirroring the lift in the value of housing finance, the number of loans issues to owner-occupiers also increased, rising 1% to 57,161 over the month.

The ABS said that loans to purchase existing dwellings increased 1.5% to 47,680 in seasonally adjusted terms, while those to purchase new dwellings also rose by 1.5% to 3,135.

After a solid run in recent months, loans to build new dwellings went backwards, sliding 2.4% to 6,346.

Hinting that attempts to improve affordability for first-time buyers in New South Wales and Victoria are working, the ABS said that loans to this cohort as a proportion of total owner-occupier loans rose to 17.2%, the highest level since July 2013.

“The increase has been driven mainly by changes to first home buyer incentives made in July by the New South Wales and Victorian governments,” said the ABS, adding that it is “working with financial institutions to establish the size of the increase in first home buyer lending in recent months”.

“These numbers may be revised and users should take care when interpreting recent ABS first home buyer statistic,” it says.

The ABS does not release information on the number of loans issued to investors as part of the housing finance report.

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