CHART OF THE DAY: Australians want loans to buy houses and not much else

Photo: Patrick Riviere/ Getty Images.

When it comes to access to credit, Australians seem to only want it for housing and not much else right now.

According to private sector credit figures released by the Reserve Bank of Australia (RBA) on Wednesday — essentially the outstanding value of loans to households and businesses — balances grew by 0.6% in October in seasonally adjusted terms, leaving the increase on a year earlier at 5.3%, the smallest seen since August 2014.

Within this figure, housing credit grew by 0.6% for the month, leaving the year-on-year increase unchanged from September at 6.4%.

Credit extended to owner occupiers expanded by 0.5%, seeing the year on year increase slow to a ten-month low of 7.1%.

However, that slowdown was countered by an acceleration in credit extended to investors which grew by 0.7%, the sharpest monthly increase since August last year, just as tighter lending restrictions from Australia’s banking regulator, APRA, were starting to take effect.

Annual credit growth to investors now stands at 5.3%, near half the limit imposed by APRA but a noticeable pickup on the levels seen just two months earlier.

Kristina Clifton, an economist at the CBA, said the uptick was likely due to the cash rate cuts from the RBA in May and August of this year.

In dollar terms, the value of housing credit now stands at $1.6036 trillion. Within that figure, outstanding balances held by owner-occupiers rose to $1.0425 trillion, the highest level on record, while that to investors stood at $560.3 billion, a 13-month high.

Without loan reclassification from lenders as a result of tighter restrictions from APRA — something that saw some loans previously deemed to be to investors reclassified as to those to investors — the latter figure would also sit at a record high.

Outside of housing, demand for credit for personal and business purposes remained subdued.

Outstanding credit for personal loans held steady in October, leaving the contraction over the past year at 1.1%.

Business Credit, after some promising signs earlier this year, increased by 0.5% for the month. Despite the acceleration, up from 0.2% in September, growth from a year earlier slowed to 4.4%, the weakest increase in two years.

Despite subdued demand for credit outside of housing, Andrew Hanlan, an economist at Westpac, is expecting a “modest lift” to occur in the months ahead.

“Housing will be supported by the RBA’s May and August rate cuts, albeit the impact is likely to be relatively modest by historical standards given the late stage of the cycle,” he says.

“For businesses, the lending slowdown was around the time of the July Federal election and is overdone relative to fundamentals.”

That’s a view shared by Clifton at the CBA who says the “lift in the terms of trade since mid-year will provide a boost to incomes and should encourage a lift in non mining business investment, particularly in the mining states”.

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