Australian investor housing growth is still running too hot for APRA

Photo: Ian Waldie/Getty Images)

Australia’s growth rate of investment lending has slowed from its recent peak of 11.1% in the 12 months to June, to 10.7% in the 12 months for August. But that’s still faster the 10% “speed limit” APRA imposed on Australia’s banking sector for growth in investment lending.

Overall housing growth increased to a new cyclical peak of 7.5% with the owner-occupier growth rate rising to 5.6% in the year to August, from 5.3% previously, on the back of a 0.6% monthly gain. That’s the largest monthly gain in owner-occupied finance since December 2010.

APRA’s focus has been on the growth rate of investor housing and concerns around financial stability. That’s because not only has investor borrowing been driving up prices in Sydney and Melbourne but because second and subsequent property investments are seen as more at risk of default and fire sale if the borrower, or the economy, gets into strife.

So while APRA placed speed limit on investment lending, what you might call the flow of new loans, it actually the total investment loans, the stock, as a percentage of total housing debt that they are worried about.

As it stands in Australia, the RBA reports there is currently $1.458 trillion in mortgage debt outstanding nationwide in seasonally adjusted terms. Between 2003 and 2014 the ratio of investment debt to the debt held by owner-occupiers stood in a 46-51% range.

All that changed in the recent cycle and the ratio hit a peak of 62.7% in June. It’s back at 61.4% in August, but the $565 billion in debt that represents is still worrying APRA.

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