New figures from the Australian Prudential Regulation Authority (APRA) have revealed that the value of investor mortgages outstanding has fallen by 2.4 per cent year-on-year, its greatest decline on record.
According to the June 2016 quarter property exposures data, which monitors exposure to the property market by Australian Authorised Deposit-taking Institutions (ADIs), the value of residential property exposures for investor loans were $506.3 billion — down $12.5 billion on the same quarter last year.
Touching on the figure, Cameron Kusher, head of research at CoreLogic, said: “To put the investor lending slowdown into perspective, 12 months ago investor mortgage credit had increased by 12.7 per cent”.
In total, ADIs' outstanding residential term loans to households at the end of the June 2016 quarter amounted to $1.4 trillion, an increase of $107 billion (or 8.1 per cent). This amounted to 5.6 million loans.
Mr Kusher noted that this marks the “slowest year-on-year growth since the June 2014 quarter”, adding that the value of owner-occupied mortgages has increased by 14.8 per cent year-on-year, “its largest rise since March 2010”. They rose by $119.8 billion to $930.4 billion.
The average outstanding mortgage balance was $252,100, up from $241,000 as at 30 June 2015. Almost two-fifths of the value of outstanding mortgages (39 per cent) were for interest-only mortgages, which have increased in value by 7.7 per cent on last year (to $557 billion).
The value of reverse mortgages also rose (by 1.8 per cent to $2.7 billion), while credit for low-documentation and other non-standard loans fell (by 16.2 per cent and 8.5 per cent, to $24.7 billion and $1 billion respectively).
LVRs reaching record levels
The quarter also saw a record high of 78 per cent of mortgages having a loan-to-value ratio of less than 80 per cent (meaning the borrower had a deposit of at least 20 per cent).
Over the quarter the value of lending increased across each of the LVR bands, however, year-on-year the value of lending for LVRs of less than 60 per cent was up 19.2 per cent; for LVRs between 60 and 80 per cent it was 1.1 per cent lower; for LVRs between 80 and 90 per cent it was 6.1 per cent higher; and for LVRs above 90 per cent it was 20.7 per cent lower.
Mr Kusher said: “Looking at the loan-to-value ratios (LVR) on new mortgages over the quarter it is clear that lenders and or borrowers are becoming more conservative and using larger deposits.”
He added: “Encouragingly, just 8.3 per cent of all new mortgages had an LVR of more than 90 per cent, which is a record-low.”
For new lending, there was $98.4 billion in new mortgage lending, with the majority ($64.4 billion) for owner-occupiers and $34 billion for investors.
Mr Kusher said it was a “record quarter” for the value of new lending, which increased by 20.7 per cent over the quarter and was 2.1 per cent higher year-on-year.
Although new interest-only lending was 19.1 per cent lower year-on-year, it increased by 25.1 per cent over the quarter, which Mr Kusher said “is in line with the significant jump in new lending to investors”.
It was also the largest quarter since June 2015 for other non-standard loans, while the $3.5 billion of loans approved outside of serviceability was the lowest since the March 2015 quarter.
Mr Kusher commented: “Overall the data shows that there has been a rebound in new lending to investors and a commensurate increase in interest-only lending over the past quarter. After annual investor housing credit growth has slumped to well below APRA’s 10 per cent speed limit it is clear that some lenders have scope to dial-up their lending to investors. It also shows that despite historically weak rental markets and record low rental yields, there remains demand from the investment segment of the market.
“While investment lending has lifted over the past quarter, the data is showing there is a more conservative approach to high LVR lending. The ongoing declines in lending with an LVR above 90 per cent is encouraging because it should lead to reduced risk.
“Over the coming quarters we’ll be closely watching how much higher investment lending lifts. Keep in mind that despite record low yields, the returns are still superior to putting money in a term deposit, especially once you factor in the recent capital growth as well. Interest-only lending trends will also be important to watch with APRA already having raised concerns about that particular type of lending.”
[Related: Mortgage arrears continue upward trend]