The Reserve Bank released its Financial Aggregates data, and the figures revealed a tentative tick in the box for low interest rates biting just a little more than they have been.
While personal credit growth remains the definitive laggard, total credit growth for housing is up at a healthy annualised 7 percent clip, and business credit growth is slowly making its way back to respectable levels.
Business credit grew by 4.3 percent year-on-year following a better 0.7 percent result for the month.
As the below chart shows, business credit growth, while historically speaking only modest, is now tracking in the right direction again and at its best annual rate of growth since the month of June 2012 at 4.3 percent.
Given that total outstanding housing credit generally just increases faster and then slower again, it is the rate of change which is of interest.
Notably, seasonally adjusted investor credit has been leading the way in this cycle as mortgage lending rates have become more attractive.
The below chart shows the annual rate of growth on a rolling 12 monthly basis.
Notably, while both forms of housing credit continued to expand in the month of October, the rate of investor credit continues to grow more quickly than that of credit written for owner occupier housing loans.
Interest Only Loans
A related but slightly separate issue is the rise of interest only loans.
APRA’s latest API Property Exposures data released this week showed that 34 percent of loans outstanding related to investors while a record 36.8 percent of mortgages outstanding as at Q3 2014 were interest only loans. Most strikingly, some 42.5 percent of mortgages written in Q3 were interest only loans.
While this may appear to be inherently risk-laden, it is surely not a surprising trend given the nature of today’s interest only loan products, and any real devil must be within the detail.
Low doc loans, for example, which do tend to be comprise some “riskier” lending, have fallen to just 2.7 percent from 3.6 percent a year ago, the lowest level for low doc loans ever recorded in the data series.
Meanwhile, in the absence of any regulatory intervention, interest only loans are also likely to increasingly (perhaps even rapidly) become the product of choice for home owners as well as investors.
Why? Simply because the modern variable rate interest only mortgage is a superior product for the responsible borrower, due to its flexibility and the option to make repayments to the principal but on the borrower’s own terms.
The major bank lenders will tell us that effective prudential measures are already in place, with loan books showing very low delinquency rates and 180bps serviceability buffers in operation.
Meanwhile, the RBA’s own research has shown that most borrowers are well ahead on repayments largely thanks to the unique structuring of interest only loans in Australia and some smart management of household finances in the prevailing low interest rate environment (an issue we looked at here on Property Observer last month).
Can homeowners in aggregate be trusted to use interest only home loans sensibly?
“Crackdown” to be Delayed
The Reserve Bank’s rhetoric has suggested all along a reluctance to take specific actions to cool a housing market which it had itself wanted to heat up (in order to stimulate dwelling construction and consumption) other than the odd bit of jawboning aimed at Sydney investors from the Governor and other members.
With house price growth threatening to stall (CoreLogic-RP Data’s index shows home “values” as having decreased in Adelaide and Melbourne over the past quarter, and by $18,000 or 2.6 percent in November alone in Melbourne’s case), any potentially rigorous macroprudential changes appear likely to be delayed further.
More stock is hitting the housing market with auction numbers at or around record levels, and this has taken much of the sting out of investor credit growth.