The Australian Bureau of Statistics (ABS) released housing finance data for January 2015 yesterday.
This data represents the first full month of lending-based results after APRA’s recommendation to Australian Authorised Deposit-taking Institutes (ADI’s) reinforcing sound residential mortgage lending benchmarks.
Over the month the total value of housing finance commitments fell by -0.6% across both the owner occupier and investor segments of the market.
The value of housing finance commitments has increased by 12.8% year-on-year.
Taking a look at the breakdown between the owner occupier and investor segment of the market, it is clear that most of the strength is coming from investors.
The value of owner occupier housing finance commitments fell by -1.0% over the month and investor lending recorded a fall of -0.1%.
Despite the monthly fall in lending, the value of housing finance commitments was 7.1% higher year-on-year to owner occupiers and 22.1% higher to investors.
The proportion of total lending to investors reached an all-time high in January 2015.
Over the month, 41.4% of the value of all housing finance commitments was to investors.
In comparison, a record low 39.1% of the value of housing lending was to owner occupiers for new loan purposes and 19.5% was to owner occupiers for refinances.
If we look solely at the value of new lending (excluding refinances) investor lending hit a record high 51.4% of all new lending in January 2015.
Focusing on the owner occupier segment of lending, $17.7 billion was lent in January down from $17.9 billion in December.
Across the segment: $1.8 billion was lent for construction of new homes, $0.9 billion for the purchase of new homes, a record high $5.9 billion for refinances and $9.1 billion for purchase of established homes.
Month-on-month, housing finance commitments for owner occupiers fell by -2.6% for construction of new homes, -5.4% for the purchase of new homes, +1.8% for refinances and -2.0% for purchases of established dwellings.
Year-on-year, the strength in the owner occupier segment has largely been from refinances which have increased by 28.5%.
Across the other segments, construction of new homes were up +1.5%, purchase of new homes are -7.2% and purchase of established homes are -0.9%.
The data indicates that much of the activity across the owner occupier segment of the market is coming from refinances as home owners shop around for a better deal or prepare to withdraw some of their equity which would feed into the strength of the investment segment.
Where was it spent?
Turning to the investment lending segment, $12.5 billion was lent in January which was slightly lower than investment lending in December.
Over the month there was $0.8 billion in commitments for construction of new dwelling and $11.7 billion for commitments to existing homes showing that investor lending is largely going to existing homes with lending to that segment almost 14 times greater than lending for new construction.
Over the month, investor commitments for new construction fell -18.8% compared to a 1.6% increase in lending for purchases of existing homes.
Year-on-year, the value of commitments for construction of new dwellings is 85.1% higher while investor lending for established homes has increased by 19.1%.
The data shows that despite lending to investors is surging, a relatively small amount of this lending is contributing to new housing stock being constructed.
Turning to the first home buyer segment of the market, the number of owner occupier first home buyer commitments fell sharply in January.
It should be noted that this data series is not seasonally adjusted. Over the month there were 5,961 commitments which was -26.4% lower over the month and -14.4% lower year-on-year.
As a proportion of all owner occupier housing finance commitments, investors accounted for 14.2% of commitments in January.
Based on this data, the level of first home buyer participation in the market remains extremely low, however a weakness of the ABS data set is that it doesn’t identify first home buyers that are purchasing as investors.
Anecdotally, it appears that many first time buyers are choosing to purchase an investment property rather than a principal place of residence.
The CoreLogic RP Data Mortgage Index measures activity across CoreLogic RP Data’s mortgage platforms each week.
The activity is highly correlated with housing finance data and as the above chart shows, activity has surged over recent weeks.
Based on this data, it suggests that despite the Christmas/New Year slowdown there has been no sustained slowdown in mortgage demand.
Given this we would expect a rebound in housing finance commitment over the coming months.
Following the letter from APRA to Australian ADI’s in December we have seen a slight easing in housing finance commitments however, it is too early to suggest the two are related.
Investor activity remains very strong and for the first time on record we have seen six consecutive months in which lending to investors is greater than lending to owner occupiers for new loans.
Investors are largely purchasing existing homes which does little to contribute to new housing, although the value of commitments to investors for new construction has risen sharply over the past year.
The owner occupier segment is largely being driven by refinance activity as borrowers shop around for better deals on their mortgage and prepare to re-invest some of their equity.
Over the coming months it will be important to monitor if the new guidelines from APRA and the ramping up of their surveillance of mortgage lending has much of an effect on demand.
We would suspect that the high level of competition in the mortgage market is likely to result in minimal change across the board.
While some individual lenders may have to tinker with their lending policies, borrowers have many other banks to choose from if one borrower cannot provide the type of product they are looking for.