Lending to Australian housing investors continues to fall

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  • Australian home loan lending continued to weaken in April, driven lower by another drop in the the value of investor loans.
  • The value of housing finance fell 0.2% to $31.742 billion, leaving the decline on a year earlier at 3.2%
  • Over the year, the value of loans to owner-occupiers rose by 4.2%, partially offsetting a 15% decline in the value of loans issued to investors.

Australian home loan lending continued to weaken in April, driven lower by another decline in the the value of investor loans.

According to the Australian Bureau of Statistics (ABS), the value of housing finance fell 0.2% to $31.742 billion in seasonally adjusted terms, leaving the decline on a year earlier at 3.2%, slightly smaller than the 4.4% drop reported in the 12 months to March.

However, as seen in the chart below, the value of Australian home loan lending still remains elevated compared to historic norms.

According to the ABS, the value of investor lending fell by 0.9% to $10.749 billion in seasonally adjusted terms, adding to the 8.9% decline reported in March.

From a year earlier, the value of investor lending slumped by 15%, reflecting the impact of tighter lending standards from Australia’s banking regulator, APRA.

“The share of borrowing by investors continues to fall, and, at 42%, is the lowest since 2012,” said Daniel Gradwell, Senior Economist at ANZ Bank.

“New South Wales and Victoria have seen the sharpest declines, consistent with the rapid cooling in their respective housing markets in recent months.”

In contrast to lending to investors, the value of owner-occupier lending increased, lifting 0.2% after seasonal adjustments to $20.993 billion in April.

From a year earlier, that represented an increase of 4.2%, a small acceleration on the 3.1% pace seen in March.

Excluding refinancing of existing home loan facilities, lending to owner-occupiers was flat during the month at 14.687 billion. That was an increase of 2.4% on 12 months earlier.

Owner-occupier refinancing grew by 0.5% to $6.31 billion in April, leaving it up 8.6% over the year.

This chart show the steep decline in the value of investor over the past year which, along with a moderation in new lending to owner-occupiers, has driven the year-on-year decline in the value of total housing finance.

Despite the lift in the value of owner-occupier lending seen in April, the number of loans issued to this group fell, dropping by 1.4% to 52,116 in seasonally adjusted terms, leaving the decline on a year ago at 2.9%.

Markets had been looking for a slightly larger decline of 1.8% in April.

Excluding refinancing of existing owner-occupier loans, new loans to this cohort fell 1.9% in April, and by 4.4% over the year.

The ABS said loans issued to buy existing, newly completed and for housing construction all declined over the month, dropping by 1.3%, 3.7% and 0.2% respectively to 43,643, 2,870 and 5,603.

Without seasonal adjustments, the ABS said the proportion of owner-occupier loans going to first home buyers increased to 17.6%, up from 17.4% in March.

Recent declines in Sydney and Melbourne property prices, along with the introduction of stamp duty concessions by the New South Wales and Victorian state governments last year, has helped to bring forward demand from first time buyers in these markets over recent months.

The stamp duty discounts for first home buyers across New South Wales and Victoria are still assisting some buyers, but the effect is waning as it has done in previous episodes,” said Gradwell at ANZ.

“Finance approvals for first home buyers in these two states are down 8% from the November 2017 peak.

“While falling house prices are broadly positive for these buyers, further credit tightening is likely to weigh on the segment.”

Given ongoing weakness in auction clearance rates and prices in Australia’s largest housing markets, Matthew Hassan, senior economist at Westpac Bank, says the value and number of home loans will likely fall in the months ahead.

“Recent data from auction markets, in particular, suggest the market has seen a further weakening since April likely reflecting tighter lending criteria,” he says.

“With more stringent assessments also likely to delay loan processing, finance approvals could see a more significant decline in the next few months.

Gradwell at ANZ shares a similar view to Hassan.

“Looking forward, tighter credit conditions are likely to continue to bite, suggesting that housing finance will remain soft for some time yet,” he said.

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