Decreased mortgage lending is slowing our property markets.
The value of housing finance commitments is now in a clear downwards trend.
In November 2018 there was $29.1 billion in housing finance commitments by Australian lenders.
The total value of housing finance commitments fell by -2.5% over the month and was -13.1% lower year-on-year.
The $29.1 billion was the lowest value for housing finance commitments and was split between $19.8 billion to owner occupiers and $9.3 billion to investors.
The value of owner occupier housing finance commitments (including refinanced loans) fell by – 1.4% over the month and was -7.3% lower year-on-year.
Finance commitments to investors fell by -4.5% in November 2018 and they were -23.4% lower year-on-year.
The ongoing changes to lending policies for investors has led to less mortgage activity across this segment however, stamp duty concessions in NSW and Victoria for first home buyers and low interest rates have resulted in more moderate declines in demand across the owner occupier segment over the second half of 2018.
The value of lending to owner occupiers is now trending lower
In November 2018, the $19.8 billion in owner occupier housing finance commitments was split between: $1.8 billion for construction of dwellings, $1.1 billion for purchase of new dwellings, $6.2 billion for refinancing of established dwellings and $10.7 billion for purchase of established dwellings.
Each of the four categories has recorded a fall in the value of commitments compared to November 2017.
The year-on-year change in the value of finance commitments were recorded at: -9.2% for construction of dwellings, -11.6% for purchase of new dwellings, -0.6% for refinancing of established dwellings and -10.0% for purchase of established dwellings.
Lending to real estate investors is well below its peak and continues to trend lower
The $9.3 billion in investor housing finance commitments was split between $0.8 billion for construction of dwellings and $8.6 billion for established housing.
Lending for construction of dwellings fell over the month (-16.8%) and was -47.8% lower year-on-year while lending for established dwellings fell over the month (-3.3%) and fell -20.1% year-on-year.
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 2018, the value of investor housing finance commitments was -36.7% below its historic peak which occurred in April 2015.
Although the value of lending to investors has fallen, investors accounted for 41.7% of the total value of new finance commitments (excluding refinances) in November 2018 which was well above the long-run average share of 34.4% but also its lowest share since April 2011.
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 remain the most concentrated.
Owner occupier first home buyer finance commitments have climbed higher since the middle of 2017
Data on owner occupier housing finance commitments to first home buyers shows that there were 10,493 commitments in November 2018.
The volume of commitments was 3.5% higher over the month but -5.6% lower than at the same time in 2017.
A key 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, 2017.
Comparing the number of first home buyer commitments to last year across the states shows volumes are higher in NSW (+1.9%), SA (+4.2%), WA (+0.4%), Tas (+13.4%) and NT (+64.6%) while they were lower in Vic (-10.5%), Qld (-16.1%) and ACT (-0.3%).
Owner occupier average loan sizes have fallen slightly over recent months
The average new mortgage size to owner occupiers was recorded at $384,700 in November 2018.
Average mortgage sizes were -0.4% lower over the month and -1.1% lower year-on-year.
First home buyer average loans sizes are $336,500 and have fallen by -0.7% over the past month however, they are 2.8% higher year-on-year.
Non-first home buyer average loan sizes sit at $395,500 and have fallen by -1.7% year-on-year.
The majority of owner occupiers take out a variable rate mortgage
Housing finance data reveals that in November 2018, 16.9% 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, noting that this data is not published for investors.
The proportion of new mortgages on a fixed rate has trended higher over recent months which is not surprising given that fixed rate mortgage rates are currently lower than those on variable rates.
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
Over the September 2018 quarter, the Australian Prudential Regulation Authority (APRA) reported that there was $15.704 billion in new interest-only lending.
The $14.407 billion in new interest only lending which accounted for 16.1% of total lending over the quarter.
The recent reduction in new lending and early switching to principal and interest mortgage from borrowers (due to higher interest rates) has seen the total portfolio of outstanding interest only mortgages fall to its lowest value since September 2014.
As a share, the total value of outstanding interest only mortgage debt is now its lowest any time since March 2008.
New interest-only lending has a cap of 30% of total new lending and demand for the product remains well below this 30% cap.
Average outstanding mortgage balances continued to climb over the past year
The average outstanding mortgage balance was recorded at $273,700 as at the end of September 2018 which was 0.8% higher over the quarter and 3.5% higher over the year.
Interest-only mortgages had the highest average outstanding amount at $355,900, up 2.6% over the year.
Mortgages with an offset facility also had an above average outstanding amount ($321,500) having risen by 2.3% over the past year.
The average outstanding balance on a reverse mortgage has increased by 5.0% over the past year to $108,800.
Low-documentation mortgages had an average outstanding balance of $189,900 which has declined by -2.8% over the past year.Other non-standard mortgages have seen their average outstanding balances increase by 3.6% over the year to $193,600 at the end of September 2018.
While outstanding mortgages amounts are edging slightly higher, they remain substantially lower than current prices indicating that, on average, home owners have significant equity in their properties.
Lenders are generally requiring larger mortgage deposits, with ongoing reductions in high loan to value ratio (LVR) lending
According to APRA there was $89.219 billion in new mortgage lending over the September 2018 quarter.
$24.978 billion worth of new mortgage lending over the quarter was for loans with an LVR of 60% or less (ie a deposit of at least 40%) which accounted for 28.0% of all new mortgage lending for the quarter, its highest share since June 2013.
Loans with an LVR of between 60% and 80% accounted for 51.1% of all new lending over the quarter at $45.608 billion.
79.1% of new mortgages over the quarter had an LVR of less than 80%.
14.4% of lending over the quarter was for loans with an LVR of between 80% and 90%, at a total of $12.860 billion.
Just $5.772 billion was lent for mortgages with an LVR of more than 90% over the September 2018 quarter which was an historic low share of the total at 6.5% as well as an historic low by value.
The trend towards fewer new mortgages being written with high LVR’s reflects a more conservative approach to mortgage lending being taken by lenders.
Mortgages with LVR’s above 80% also typically incur lenders mortgage insurance (LMI) and a reduction in higher LVR lending likely implies reduced demand for this product.
Growth in investor housing credit has fallen to the lowest level on record over the twelve months ending November 2018
The total value of outstanding mortgage credit, according to the RBA, was $1.80 trillion in November 2018.
Housing credit advanced by 0.3% in November 2018.
Owner occupier credit expanded by 0.4% (slowest growth since August 2014) over the month and investor credit was unchanged over the month.
Over the 12 months to November 2018, housing credit has advanced by 4.9% which was its slowest growth since August 2013.
Owner occupier housing credit increased by 6.8% over the year to November 2018, its slowest rate of expansion since October 2015.
Investor credit expanded by 1.1% over the year which was its slowest rate of annual growth on record.
Source: Corelogic Quarterly Economic Review – released February 2019
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