- Morgan Stanley have downgraded their outlook for credit growth in the Australian home loan market.
- Tightening lending standards have been cited as a key factor which could weigh on house prices.
The tightening outlook for credit growth is seen by a number commentators as the key factor that will weigh on house prices.
And Morgan Stanley analysts have reduced their forecasts for mortgage loan growth in the wake of recent regulatory restrictions.
“We now forecast the major banks’ housing loan growth to slow from around 6.5% in the 2016 financial year to around 2% in both FY19 and FY20,” the analysts said.
For the 2018 financial year which finishes at the end of June, MS is forecasting new loan issuance of $357 billion — down from $382 billion three years ago.
That figure will be offset by $306 billion of repayments, leaving net loan growth at 3.6% before it slows further in the next two years.
The slowdown in credit growth is now central the outlook for house prices, as the Sydney and Melbourne-led property market slowdown becomes more entrenched.
Last week, ANZ analysts changed tack and said house prices are now likely to go lower for longer. And they cited the reduced availability of credit as the primary driver.
Along with increased scrutiny stemming from the ongoing Royal Commission, banks will also have to respond to new regulatory restrictions outlined by APRA at the end of April.
Although APRA’s directive was non-binding, the regulator said it now expects banks to adopt stricter standards around loan-to-income ratios.
At the time, investment banking analysts from JP Morgan and UBS highlighted it as a significant move which could have a material impact on new credit growth.
Earlier this week, data from the ABS showed that lending to housing investor continues to fall.
Morgan Stanley also expects repayments to increase, as borrowers switch from interest-only to principal and interest repayments. That will have the effect of further slowing credit growth.
The MS analysts retained their negative stance on Australian banks, “given a challenging operating outlook and an uncertain regulatory environment”.
“Despite recent under-performance, trading multiples have not yet de-rated far enough to provide strong valuation support.”
The analysts have an even-weighting in their portfolio for ANZ and Westpac, with underweight positions in NAB and CBA.