Housing investment credit growth has hit an all-time low in Australia

(Photo by Scott Barbour /Getty Images)
  • Loan growth to housing investors was flat in May, leaving the annual growth rate at 2% — the lowest level on record.
  • Multiple analysts have highlighted tighter lending standards as a key factor which will weigh on house prices.
  • Despite the slowdown in investor lending, JP Morgan said credit growth still exceeded deposit growth for the fifth straight month.

Private sector credit figures released by the RBA today provided more evidence that the effect of tighter lending standards is being felt in Australia’s housing market.

Total private sector credit rose by 0.2% in May, down from 0.4% in April, which saw annual growth slow to 4.8%.

Within the headline figure, growth in housing credit held steady at 0.4%, leaving annual growth at 5.8%.

That was down from 6.6% at the same time last year, and in a continuation of recent trends, the growth in housing credit was driven by loans to owner occupiers.

Loans to owner-occupiers held steady, with growth of 0.6% for the third straight quarter as cooling prices and first home-buyer grants attract buyers into the market.

However, “credit growth for investors was flat in the month and just 2.0% higher over the year. This is the slowest pace of investor credit growth on record,” said CBA economist Kristina Clifton.

Source: CBA

Investment lending now comprises just 33.5% of all outstanding housing credit in Australia — the lowest level since 2013.

JP Morgan economist Henry St John said it was the first time loans to housing investors had recorded flat monthly growth since December 2015.

Loans to housing investors have been in a steady decline since the introduction of macro-prudential measures in March last year, along with out-of-cycle rate hikes by Australian banks.

In response to the changes, housing investors have also started switching from interest-only loans into principal & interest repayments.

Multiple analysts have cited the introduction of tighter lending standards as a key factor which will extend the Sydney and Melbourne-led downturn in Australia’s property market.

Banks have also been implementing out-of-cycle rate hikes as funding pressures mount, and St John said today’s data revealed another troubling trend in that regard.

Despite the slowdown in investor lending, overall bank credit growth still exceeded deposit growth for the fifth straight month:


“Although credit is decelerating, the credit-deposit gap continues to widen, a conundrum which we have discussed at length in recent research,” St John said.

“The persistent credit-deposit gap suggests that banks will continue to face stress in short-term funding on an ongoing basis, and particularly around quarter-ends.”

Elsewhere in today’s report, personal credit growth fell by 0.1% in May to be down 1.3% for the year — a reflection of cautious consumers amid an environment of high household debt and low wage growth.

Business credit slowed by 0.2% after two straight months of gains, which left the annual rate of growth at 3.8%.

“Despite business credit growth having been soft for several years now, non-mining business investment posted a strong 14% increase over the year to March,” Clifton said.