Interest-only lending changes driven by increased regulatory scrutiny are creating processing headaches for the non-major banks.
That’s according to the August 2017 Statement on Monetary Policy from the Reserve Bank of Australia (RBA).
The RBA observed that the major banks’ share of residential loan approvals “remains at its lowest level since 2012”, while the easing growth in the major’s housing lending over the six months to August was “partly offset” by stronger growth in other authorised deposit-taking institutions (ADIs).
The RBA said: “In general, non-major lenders are running up against constraints in their capacity to process the increased volume of applications in a timely manner.
“There was also strong growth in housing credit extended by non-ADIs, although these institutions account for less than 5 per cent of the stock of housing credit.”
According to the RBA financial aggregates for the year ending June 2017, housing credit was up by 6.6 per cent, while owner-occupier lending was up by 6.2 per cent and investor lending was up by 7.4 per cent.
However, the rate of growth in investor lending slowed slightly when comparing three-month rolling figures. In the three-month period ended June 2017, investor lending grew by 1.5 per cent. In contrast, in the three-month period to the end of March 2017, investor lending grew by 2.0 per cent.
The RBA noted that a slowdown in investor credit was largely offset by growth in credit granted to owner-occupiers.
Since November 2016, the average variable interest-only rate on new lending at the major banks has grown by 52 basis points for owner-occupiers and 73 basis points for investor loans.
Meanwhile, new lending on loans with variable principal and interest repayments has fallen by 4 basis points for owner-occupier clients and grown by 29 basis points for investor clients.
In the same report, the RBA identified the large amount of apartment supply in the pipeline as a potential weakness.
“This could mean that buildings approved but not commenced do not go ahead, in which case dwelling investment and related household spending would be weaker than expected,” the bank said.
“Declining housing prices could also cause difficulties for some apartment developers.”
The RBA added that state and federal budget measures designed to crack down on foreign investment will likely hit hardest in markets where foreign investors have been most active, such as inner-city apartments.