Home loans issued by non-bank lenders are rising sharply in Australia

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  • Data from ANZ shows a sharp rise in home loans issued by non-banks, as major lenders face increased regulatory scrutiny.
  • Economists Daniel Gradwell and Shaurya Mishra said a steady pickup in non-bank lenders is a net-positive for the market.
  • However, growth in the sector won’t offset the broader slowdown in credit growth and house prices.

Tighter lending standards have been universally cited as one of the driving forces behind Australia’s housing market downturn.

Prices in Sydney began falling in September 2017, about six months after APRA put a cap on interest-only lending.

And with the big banks facing continued scrutiny from regulators, growth in loans to housing investors has fallen to multi-year lows.

But as ANZ economists Daniel Gradwell and Shaurya Mishra note, “APRA’s macroprudential policies do not apply to the entire market”.

So at the same time as broader credit growth has been slowing, there’s been a sharp rise in new home-loan issuance among non-bank lenders.

This chart tells the story:

The steep rise in non-bank lending (represented by the light blue line) coincides with restrictions in interest-only lending for APRA-regulated banks.

Non-bank housing credit has now risen by around 13% in annual terms, compared to growth of just 4.8% for banks.

The increase means the non-banks’ share of total housing debt has risen to 7.7%, up from 6.6% one year ago.

“It appears that non-bank lenders are making the most of their position outside of APRA’s regulatory net,” the two analysts said.

While the prospect of increased regulation forcing borrowers towards shadow banks raises obvious risks, ANZ isn’t too concerned.

Interestingly, non-banks don’t appear to be picking up the slack in investor loans — the segment targeted by regulators which is now driving the downturn in credit growth.

Within the headline annual growth numbers, non-bank loans to owner-occupiers rose by 17% while investor loans rose by just 2.5%.

In addition, the growth in non-bank lending is coming off a low base.

And despite the recent increase, non-banks still only have a 7.7% share of total housing debt (up from 6.6%) — well below levels reached before the financial crisis:

So on balance, ANZ said increased activity in the non-bank sector was a net-positive.

“A stronger lending appetite across the non-bank sector is welcome news for the housing market.”

Gradwell and Mishra noted the major Australian banks are expected to face further scrutiny on their lending practices, which are likely to keep credit growth in check.

So in that environment, a small diversion towards non-bank lenders helps “take some of the edge off”.

However, they made it clear that non-bank lending won’t offset the broader slowdown in credit growth, and by extension house prices.

“We continue to expect that credit availability will weigh on housing prices and construction, both of which are expected to decline for some time yet,” they said.

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