Home loans to Australian owner-occupiers surged in May

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Australian home loans grew both in terms of number and amount in May, according to data released by the Australian Bureau of Statistics (ABS) earlier today.

However, the strength was entirely driven by owner-occupiers with the value of investment lending continuing to fall.

Over the month, the ABS said that the value of new lending jumped by 1.3% to $33.032 billion in seasonally adjusted terms, driven by a surge in owner-occupier financing of 2.9% to $20.717 billion.

New loans to owner-occupiers increased by 1.47% to $14.57 billion, leaving it at the highest level on record. From a year earlier the value of new finance to owner-occupiers increased by 9.75%, the fastest growth since May 2016.

Helping to explain the size of the increase in total owner-occupier lending, refinancing of existing loans jumped by 6.6% to $6.15 billion, reversing the trend seen in the prior three months.

Higher interest rates on interest-only loans from lenders, introduced in response to changes introduced by Australia’s banking regulator, APRA, likely explain the surge in refinancing seen in May.

In percentage terms, the increase was the largest since February 2014, but still left the value of refinancing down 9.9% on the levels of a year earlier.

As a result of the strong growth recorded in May, the total value of outstanding owner-occupier home loans to Australian authorised deposit-taking institutions (ADIs) rose to $1.0395 trillion, a record high.

Mirroring the surge in owner-occupier financing, the number of home loans issued also increased, rising by 1% to 54,061.

Loans to purchase an existing dwelling, by far the largest component, increased by 0.7% to 45,152, outpaced by solid increases in loans to build or buy a dwelling which jumped by 2.4% and 3.7% respectively.

At 6,024, the number of loans to build a new property was the highest in over two years. Loans to buy a new dwelling, at 2,886, hit levels not seen since June 2007.

“The firmness in construction related lending suggests there will be an extended top for new construction,” said Michael Workman, senior economist at the Commonwealth Bank.

In original terms, the ABS said the proportion of owner-occupier loans to first-time buyers rose to 14%, the highest level since July 2015.

However, while owner-occupier lending surged, the value of investor lending continued to decline, an outcome that was once again likely driven by regulatory changes introduced by APRA in late March limiting interest-only loans to 30% of total new loans issued.

The ABS said that the the value of investor finance fell by 1.4% to $12.315 billion, the third decline reported in the past four months.

It was the smallest total in nine months.

The regulatory-led decline saw growth in investor finance slow to 7.8% from a year earlier, the weakest level since August last year.

In January investor housing finance was growing at 26.6% year-on-year, helping to explain why APRA, in consultation with other financial regulators, took action to slow lending to this group just a few months later.

Despite the slowdown in investor housing finance, the value of outstanding investor loans to Australian ADIs rose to $558.17 billion, again a record high.

The total value of outstanding home loans — including both investor and owner-occupiers — also scaled fresh highs, rising to $1.5977 trillion. Five years ago that figure stood at $1.1482 trillion.

In data released by the ABS in June, the value of Australia’s total housing stock was estimated to be $6.6 trillion in the first quarter of this year.

Despite the mixed report card for May, Jo Masters, senior economist at ANZ, said the overall trend still fits with a slowdown in housing market conditions.

“We see the combination of macro prudential controls, out-of-cycle rate hikes and various government measures to continue to drive a further slowing in the housing market over the second half of this year, particularly in the investor segment,” she says.

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