APRA has just released its latest quarterly update of property exposure data for Australian Deposit Taking Institutions – its the all encompassing term for banks, building societies and credit unions.
RP Data’s Cameron Kusher has had a look at the data which reveals there appears to be a growing level of risk being taken by both lenders and borrowers in the Australian housing market.
Kushers says that “Based on the value of all outstanding mortgages by households to Australian ADIs, there $811.7 billion outstanding to owner occupiers (66.2%) at the end of June 2014 and $413.5 billion to investors (33.8%)”.
But it is the level of interest only loans (those where no principle is repaid) which stands out as an area of concern with the data showing that 35.7% of outstanding loans are now interest only. This is the “highest on record” according to Kusher who says the percentage outstanding this year has increases from 34.3% the year before.
The difference over the year of 1.4% isn’t a lot in percentage terms but is equivalent to an increase of $17.15 billion in interest only loans. Arguably these loans are more risky because no principle repayment is being made by the borrower who is more likely using the tax shelter of negative gearing to defray interest costs or betting that the rise in house prices will help cover the repayments in the future.
Kusher also highlighted that when looking at “new loans written over the June quarter, 62.1% of lending was to owner occupiers and a record high 37.9% was to investors. Compared to the June 2013 quarter, owner occupier lending is up 2.0% and investment lending is 14.4% higher”.
If the level of investor activity when combined with interest only loans isn’t alarming enough Kusher also highlights that “although only 3.7% of loans were approved outside of serviceability over the June quarter, this was the highest proportion on record. This would seem to suggest that there has been some relaxation of lending standards over the quarter which is likely to be a factor that APRA finds worrying”.
When added together these statistics from APRA, coming on the day that second round submissions are due to the Financial System Inquiry, highlight that Australian banks and borrowers are taking on more risk.
Murray appears right to be focused on stability as much as competition.
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