Australian housing investor credit is slowing

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Whether due to the federal election, UK Brexit referendum or other factors, Australian private sector credit growth slowed sharply in June.

According to financial aggregates data released by the Reserve Bank of Australia on Friday, private sector credit grew by just 0.2% following seasonal adjustments, marking the weakest monthly expansion seen since December 2012.

As a consequence of the anaemic increase, the year-on-year growth rate slowed to 6.2%, the lowest level seen since July 2015.

By component, continued strength in housing credit offset weakness in personal credit, along with a surprise drop in credit extended to Australian businesses.

Housing credit, like clockwork, expanded by 0.5% — something that has now occurred for four straight months — leaving the year-on-year pace of growth at 6.7%.

Despite the regularity of the monthly increase, it is actually slower than the levels seen in previous years, leaving the annual expansion at lows not seen since September 2014.

By category, credit to owner occupiers rose by 0.5%, leaving the year-on-year expansion unchanged at 7.7%.

Credit extended to investors grew by a smaller 0.4%, the same level seen in May, leaving the annual increase at 5%, a level not seen since February 2012.

Credit to housing investors is now running at just half the annual limit implemented by Australia’s banking regulator, APRA.

However, perhaps explaining the sudden deceleration in credit growth to housing investors, the RBA acknowledged that this was partially influenced by one-off changes to the way some housing loans were classified.

“Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $42 billion over the period of July 2015 to June 2016 of which $1.3 billion occurred in June,” said the RBA.

“These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.”

Outside of growth in housing credit — no matter how it’s categorised — the news elsewhere was weak.

Business credit fell by 0.2%, the first increase since November 2015 and largest in percentage terms in over three years, leaving the year-on-year expansion at 6.6%. While well below the 7.4% annual rate seen in April, credit growth to businesses continued to trend higher.

Personal credit growth also continued to contract, sliding by 0.1% for the sixth month in a row. Personal credit has now fallen by 0.8% over the past 12 months, the largest annual contraction seen since August 2012.

Consumer caution continues to prevail, with savings, rather than borrowing, being used to finance purchases.

While the private sector credit release is not a noted market mover, on balance, the slowdown in total credit growth seen in the first half of the year will add to the case for further monetary policy easing from the RBA.

Here’s the annual percentage growth rates in housing, business and personal credit, courtesy of data from the RBA.

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