Back in December 2014 the Australian Prudential Regulatory Authority (APRA), Australia’s banking regulator, issued a written communique to all Australian authorised depository institutions (ADIs) outlining steps to reinforce sound residential mortgage lending practices across the sector.
One of APRA’s recommendations was directed towards growth in lending for property investment. APRA suggested “portfolio growth above a threshold of 10% (per annum) will be an important risk indicator for APRA supervisors in considering the need for further action”.
In other words, should an individual ADI exceed 10% growth in investor lending over a 12-month period, it may warrant further action (read restrictions and/or increased capital requirements) from APRA to slow its growth.
Now, five months on from when APRA first issued its communique, it’s time to see which ADIs have exceeded the investor lending speed limit and which ADIs have not.
This chart, produced by ANZ, shows the 12-month growth in investor lending for Australia’s largest ADIs.
Excluding the fact that ANZ has a vested interest in displaying that it is sticking to APRA’s 10% limit, it offers an interesting insight into lending activities by other ADIs across the country.
According to ANZ, using data freely available from APRA, “more than 82% of investor lending remains within APRA’s macro prudential growth target (not materially above 10%). While a number of lenders are comfortably below this range (around 12% of market share) and have scope to increase their exposure to housing investors, some lenders are tracking well above APRA’s macro prudential target growth range”.
Certainly there is a vast divergence between various ADIs across the country. While Australia’s big four banks – CBA, Westpac, ANZ and the NAB – all sit around the 10% growth rate stipulated by APRA, it is clear that smaller banks, or those not traditionally involved in the residential mortgage market, are not.
While some aren’t adhering to APRA’s guidelines as yet, ANZ believe recent actions by some ADIs is likely “to have a marginal softening impact on housing sales and price growth”.
“In recent weeks a number of banks have adopted a more conservative approach to housing investor lending, including removing discretionary discounts on housing investor interest rates, tightening new lending standards and in some cases lowering the loan-to-valuation ratio for investor loans. While it is difficult to quantify the impact of these changes with any certainty, these moves will increase the cost of investor lending and limit the supply of somewhat less prudential lending to investors by some institutions”
While markets will receive updated private sector credit figures for March on Friday, according to recent housing finance data released by the ABS and the RBA, as a whole the sectors is exceeding the 10% threshold by some margin at present.
While the changes mentioned above will take some time to filter through the statistics, it will be interesting to see whether they slow the pace of investor lending in the second half of the year.
If they do clearly no further restrictions will be required. However, if there is no sign of a slowdown, or there is continued acceleration, APRA may have to borrow from the Reserve Bank of New Zealand’s playbook and implement firm, and potentially regional-specific, measures.