Investor housing credit is finally slowing after banks raised rates

Photo: Dean Mouhtaropoulos/Getty Images.

Monthly Australian investor mortgage growth slowed for the first time in almost a year after banks raised interest rates to rein in speculators.

Outstanding loans for investment housing grew by 0.6% in January, down from December’s 0.8% climb, according to data from the Reserve Bank of Australia. That was the first slip since March 2016 and the slowest growth since September.

Australian banks raised interest rates in recent months after investors reared their heads again and added to the concerns of the regulator, APRA.

Banks, told to cap lending to landlords at 10% a year, were forced to raise rates to temper investor appetite and shield their lending margins from rising funding costs.

Still, the acceleration in investor appetite since early 2016 means annual growth in investor loans stands at 6.6%, the fastest annual increase since February 2016.

In seasonally adjusted terms, outstanding credit issued to housing investors now stands at $572 billion, more than double the $260 billion level seen a decade earlier.

Loans to owner-occupiers nudged up 0.5% in January, higher than the 0.4% in the previous month.

Combined, total housing credit remained anchored at 0.5% for the fifth consecutive month. The annual pace pushed up to a three month high of 6.4%.

Investors have been behind the surge in Australian home prices. In 2016, the median dwelling price in Sydney and Melbourne rose by more than 13%, according to data from CoreLogic. Prices in Sydney have now doubled since the start of 2009, and have risen by over 80% in Melbourne over the same period.

That is causing some serious concerns to the nation’s regulators.

Reserve Bank of Australia Governor Philip Lowe told parliamentarians last week, while there were arguments for lowering interest rates to help lift economic growth, there was a view it would only push up household borrowing and house prices.

He noted there was a “counter-argument” that rate cuts “would probably push up house prices a bit more, because most of the borrowing would be borrowing for housing.”

That comes at a time when the rest of the economy could probably do with more stimulus. Underlining inflation remains firmly entrenched below the bank’s 2-3% target, underemployment is near record highs and wage growth sits at all time lows.

APRA, the banking regulator, updated its guidance on mortgage lending this month to ensure sound lending practices.

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