What’s ahead for property in 2018?
Over the last 2 days we’ve been discussing the state of play of the Australian housing markets.
Today we’ll look at…
New finance commitments to investors are well down on their recent highs, but remain at historically elevated levels.
There was $33.5 billion in housing finance commitments in November 2017 to Australian lenders.
The total value of housing finance commitments increased by 2.3% in November 2017 and was 0.8% higher year-on-year.
The $33.5 billion in commitments was split between $21.3 billion to owner occupiers and $12.2 billion to investors.
The value of owner occupier housing finance commitments increased by 2.7% over the month and was 6.9% higher year-on-year.
Finance commitments to investors increased by 1.5% in September however, they were -8.3% lower year-on-year.
The ongoing changes to lending policies for investors has led to waning demand in this segment however, stamp duty concessions in NSW and Vic for first home buyers and low interest rates has supported demand from the owner occupier segment.
The value of lending to owner occupiers has increased for four consecutive months
In November 2017, the $21.3 billion in owner occupier housing finance commitments was split between: $2.0 billion for construction of dwellings, $1.2 billion for purchase of new dwellings, $6.2 billion for refinancing of established dwellings and $11.9 billion for purchase of established dwellings.
Owner occupier lending has been rising on the back of increases in lending for all sectors over the past year except for refinances.
Year-on-year, finance commitments were higher for construction of dwellings (+9.3%), purchase of new dwellings (+15.3%) and purchase of established dwellings (+11.4%) while they were lower for refinancing of established dwellings (-2.8%).
Lending to investors is well below its peak but significantly higher than long-term levels.
In November 2017 there was $12.2 billion in housing finance commitments to investors, consisting of $1.4 billion for construction of dwellings and $10.7 billion for established housing.
Both lending for construction of dwellings and established housing rose over the month (+13.4% and +0.1%) however, commitments for construction were higher over the year (+18.9%) while established housing was lower (-11.0%)
The value of investor housing finance commitments had been easing on the back of higher mortgage rates to investors and other policy constraints restricting lending to this segment.
As at November 2017, the value of investor housing finance commitments was -16.7% below its historic peak.
Although the value of lending to investors has fallen, investors accounted for 44.6% of the total value of new finance commitments (excluding refinances) in November which was well above the long-run average share of 34.2%.
New South Wales and Victoria have seen heightened levels of investor borrowing over recent years with New South Wales’ much higher than Victoria’s level, and the recent increases in mortgage rates to investors, as well as tighter lender credit policies, are most likely to impact on demand within those markets where investors have been most active.
Owner occupier first home buyer finance commitments hit their highest volume since December 2009.
Data on owner occupier housing finance commitments to first home buyers shows that there were 11,091 commitments in November 2017.
Not only was the number of first home buyer housing finance commitments the greatest since December 2009, they accounted for 18.0% of all owner occupier commitments, the highest proportion since October 2009.
A big driver of the rebounding first home buyer numbers has been the removal of stamp duty for first home buyers under certain price thresholds in NSW and Vic from July 1, 2016.
Comparing the number of first home buyer commitments between June and November 2017 shows November 2017 volumes were 77% higher in New South Wales and 49% higher in Victoria.
Owner occupier average loan sizes have only slightly increased over the year
The average new mortgage size to owner occupiers was recorded at $388,900 in November 2017.
Average mortgage sizes have increased over each of the past three months and they are 3.3% higher yearon-year.
First home buyer average loans sizes are $327,100 and have increased by 1.0% over the year
Non-first home buyer average loan sizes sit at $402,500 and have increased by 4.5% year-on-year.
The majority of owner occupiers take out a variable rate mortgage, but fixed rates have risen in popularity
Housing finance data reveals that in November 2017, 15.8% of owner occupier mortgage commitments were for fixed-rate loans.
At its absolute peak, in March 2008, approximately one quarter of mortgages were on a fixed rate.
Variable rate mortgages are clearly preferred by Australian owner occupiers, again this data is not published for investors.
The rising proportion of new mortgages on a fixed rate is likely reflective of the uncertainty which has been created by ongoing mortgage repricing over recent months and likely a growing acceptance that the interest rate cycle has bottomed out.
The majority of mortgages being on a variable rate means that when the RBA change the cash rate setting or lenders adjust mortgage rates, it has an almost immediate impact on household finances.
Interest-only lending is comprising a much smaller proportion of new mortgages
The Australian Prudential Regulation Authority (APRA) reported that over the September 2017 quarter there was $16.603 billion in new interest-only mortgage lending.
The $16.603 billion in new interest only lending was the lowest quarterly value of new originations since the March 2009 quarter.
The $16.603 billion of new lending for interest-only purposes represented an historic low of 16.9% of total new lending and is much lower than its peak of 45.6% of lending in June 2015.
APRA has regulated that lenders can’t lend more than 30% of total new lending to interest-only purposes. Given this the December data will be interesting to see whether the proportion of interest-only lending rebounds closer to this threshold or remains at the current much lower level.
Average outstanding mortgage balances rose by 4.3% over the year to September 2017
At the end of the September 2017 the average outstanding mortgage balance sat at $264,300 which was 4.3% higher over the year.
Interest-only mortgages had the highest average outstanding amount at $347,000, up 3.1% over the year but slightly lower over the quarter.
Mortgages with an offset facility also had an above average outstanding amount ($314,100) having risen by 1.6% over the past year but also slightly lower over the quarter.
The average outstanding balance on a reverse mortgage has increased by 5.3% over the past year to $103,000.
Low-documentation mortgages had an average outstanding balance of $195,200 which has increased by 2.3% over the past year.
Other non-standard mortgages have seen their average outstanding balances fall by -1.3% over the year to $186,800 at the end of September 2017.
While outstanding mortgages amounts are edging slightly higher they remain substantially lower than current prices indicating that, on average, mortgagees have significant equity in their properties.
The value of lending with a loan to value ratio (LVR) above 90% is the lowest since March 2011
According to APRA there was $98.211 billion in new mortgage lending over the September 2017 quarter.
$27,595 billion worth of new mortgage lending over the quarter was for loans with an LVR of 60% or less which accounted for 28.1% of all new mortgage lending for the quarter, its highest share since December 2010.
Loans with an LVR of between 60% and 80% accounted for 51.3% of all new lending over the quarter at $50.393 billion.
An historic high 79.4% of new mortgages over the quarter had an LVR of less than 80%.
13.8% of lending over the quarter was for loans with an LVR of between 80% and 90%, at a total of $13.547 billion.
Just $6.676 billion was lent for mortgages with an LVR of more than 90% over the September 2017 quarter which was its lowest value since March 2011, and these mortgages accounted for an historic low 6.8% of new lending over the quarter.
With fewer new mortgages being written with high LVRs it reflects the more conservative approach to mortgage lending being taken by lenders.
Mortgages with LVRs above 80% also typically incur lenders mortgage insurance (LMI) and a reduction in higher LVR lending likely indicates reduced demand for this product.
Housing credit growth has slowed largely due to a slowing of investor credit
The total value of outstanding mortgage credit, according to the RBA, was $1.715 trillion in November 2017 with the value outstanding having almost doubled over the past decade.
Housing credit advanced by 0.4% in November 2017 with investor credit (0.4%) advancing at a slower pace than credit to owner occupiers (0.5%).
Monthly housing credit data shows that credit growth has been slowing recently for investors and has been relatively steady for owner occupiers.
Over the 12 months to November 2017, housing credit has advanced by 6.4% with owner occupier credit increasing by 6.3% and investor credit up by 6.5%.
The slowdown in credit growth is commensurate with higher mortgage rates for investors and an overall slowing of the rate of growth in dwelling values over recent months.
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