Fresh data from the prudential regulator has revealed a resurgence in mortgage lending among the big four, who are seeing no reduction in investor mortgage volumes despite lifting their rates.
APRA’s monthly banking statistics, released Friday, show that overall lending by Australian banks rose again in March, taking the 12-month growth rate to 7.5 per cent.
Meanwhile, the RBA’s credit aggregates data, also released on Friday, found that investment home loans grew the most over March at an annualised rate of 7.1 per cent, compared to owner-occupied loans at 6.2 per cent.
“The latest APRA data shows the big four actually wrote the lion’s share of new mortgages in March,” Digital Finance Analytics principal Martin North said. He added that none of majors were even close to APRA’s 10 per cent speed limit.
“In my mind, 10 per cent is way too generous. If they really want to control this, they need to dial it back to 5 per cent or below. Without it this will continue,” Mr North said.
The continued strength of investor lending poses challenges for APRA and the RBA, particularly after bank rate hikes appear to be having little impact on demand.
“They are probably relying on the fact that pricing will control some of the investor volume growth – that is their assumption,” Mr North said. “But of course, if you are an investor and negatively geared, you don’t care, because you can offset the increased costs, so it is actually the taxpayer who picks up the bill rather than individual investors.
“To my mind, the strategy that the regulators have is not actually adequate to control lending growth in the market place.”
Mr North described the current measures to rein in investor lending as a “blunt instrument” and believes the only thing that will actually curb demand for investor loans is a correction in house prices.
“We’ve got to find a way to get it under control because household debt is very high, mortgage stress is growing and the more this keeps going the worse the situation will get,” he said.
“I suspect the only thing that will take the top off is if house prices go in the other direction. It’s a bit too soon to call it. But unless you get some correction in home prices, this momentum will continue.”
In the meantime, the big four banks stand to benefit by seizing the opportunity to repair their margins following some heavy discounting last year, according to Mr North. He believes the strength of investor lending will continue to be uninterrupted by rate hikes and supported by capital growth and negative gearing benefits.
“Banks are very happy to blame the regulator, blame capital requirements and blame international funding, but what it really comes down to is margin repair and shareholder growth,” he said.
[Related: Westpac hikes interest-only rates]