Will the surge in investor finance cause APRA to interfere?

The Australian Bureau of Statistics (ABS) has released housing finance data for December 2014.32675715_s

The data showed an end of year surge both in the value and the number of loans.

The surge coincided with the Australian Prudential Regulation Authority (APRA) warning Australian Authorised Deposit-taking Institutions (ADIs) about risky mortgage lending practices during the month.

Chart 1

Over the month, the value of housing finance commitments increased by a total of 4.7%, the largest monthly increase since September 2013.

home loanThe large increase was comprised of a 4.1% increase in owner occupier refinanced loans, a 3.6% increase in owner occupier new loans and a 6.0% increase in investor loans.

The surge in investor loans is noteworthy, but so too is the jump in owner occupier new loans which had been flat for the past 12 months.

Year-on-year, owner occupier refinances have increased by 27.0%, owner occupier new loans have increased by 4.9% and investor loans have climbed 18.8% higher.

 

Chart 2

 

In December 2014, there were $5.8 billion in housing finance commitments for owner occupier refinances, $12.3 billion for owner occupier new loans and $12.6 billion for investor loans.

Both refinances and investor loan commitments were at a record high

Based on this data, the proportion of owner occupier new loans accounted for an all-time low 40.1% of housing finance commitments compared to 18.9% of all commitments for owner occupier refinances and a near record high 41.0% of commitments to investors.

If we strip out refinances, investors accounted for a record high 50.6% of new housing finance commitments in December 2014.

Chart 3

Looking specifically at the owner occupier segment of the market, there was $1.9 billion in commitments for construction of dwellings, $1.0 billion in commitments for the purchase of new dwellings, $5.8 billion in refinancing of established dwellings and $9.4 billion in commitments for established dwellings.Loans__

There has been a surge in finance demand over the year, particularly for newly constructed dwellings and refinances.

Year-on-year, the change in owner occupier housing finance commitments has been recorded at: 14.6% for the construction of new dwellings, 1.8% for the purchase of new dwellings, 27.0% for refinances and an increase of 3.5% for purchase of established homes.

Chart 4

Focusing on the investment segment, in December 2014 there was $1.0 billion lent for the purposes of both construction of new and $11.5 billion borrowed for investment in established homes.

The year-on-year changes have been recorded at 59.8% for new construction and 16.1% for established homes.

Chart 5

The other important figure released by the ABS is the owner occupier first home buyer commitments

housing afford

The ABS has recognized that these figures have been under-reported and have revised these figures this month.

Note that these figures still only include first home buyers that are purchasing homes for owner occupation.

In December 2014 there were 8,213 owner occupier housing finance commitments to first home buyers, representing 14.5% of all owner occupier commitments.

Despite the revisions, the number of commitments is -1.3% lower over the year.

Furthermore, the 14.5% represents the lowest proportion of commitments to first home buyers since June 2004.

The data indicates first home buyers continue to languish whilst those that already own homes and are upgrading, refinancing or purchasing an investment property continue to dominate the market.home loan

What is less clear is how many first time buyers are doing so for investment purposes (the ABS doesn’t provide a further breakdown of investment loans by buyer type as they do for owner occupiers).

As noted earlier, APRA wrote to Australian ADIs in December reiterating what they determine are prudent measures for lending and potential repercussions for those that don’t follow these guidelines.

Given the results you would have to say it had little effect on borrowers or lenders in December

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It’s also worth noting that along with an 18.8% year-on-year increase in the value of investor commitments over 2014, the RBA’s housing credit data showed that total investor credit expanded by 10.1% in 2014.

APRA noted concerns with lenders growing the investment segment of their loan book above 10% annually.

Based on these results you would have to say there remain some concerns for the regulator and it will be interesting to see if or what their next move is.

What’s not in doubt is that the ball is now firmly in APRA’s court and we are closely watching what happens next.



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Cameron Kusher

About

Cameron Kusher is Corelogic RP Data’s senior research analyst. Cameron has a thorough understanding of the fundamentals such as demographics, trends & economics. Visit www.corelogic.com.au


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