Annual housing credit growth slowest since 2013

According to the latest data from the Reserve Bank of Australia (RBA), private sector housing credit increased by 0.4 of a percentage point in July, a slight rise from 0.3 of a percentage point growth in June.

Housing credit for owner-occupied borrowers increased by 0.5 of a percentage point, with investor credit rising by 0.1 of a percentage point, following a 0.1 of a percentage point fall in June and stable growth in May.

However, when assessed on an annual basis, housing credit grew by 5.5 per cent, the slowest rate of year-on-year growth reported since December 2013 (5.4 per cent).

The annual slowdown in growth was largely driven by drop-off in investor activity, with investor credit growth increasing by 1.5 per cent year-on-year, the slowest reported annual growth on record.

Following the release of housing credit data for the month of June, principal and investment manager at the Australian Lending and Investment Centre (ALIC) Mark Davis told Mortgage Business that the tightening of lending criteria and macro-prudential measures imposed by the Australian Prudential Regulation Authority (APRA) have triggered the drop.

“It was always going to happen,” Mr Davis said. “The banks and the regulators have been playing a lot harder for investment loans and interest-only loans, and so investors have cooled off the market to some degree, which was the regulator’s intention because the market had gone up so much for the last three and a half years.”

Mr Davis said that it’s too early to tell whether such regulations have gone too far in restricting investor loan growth, noting that data released in spring would paint a better picture of the extent of the easing in investor activity.

However, Mr Davis noted that the banks may have “gone to the opposite extreme” in their response to regulatory measures.

“The banks have probably reacted to regulatory actions a little too much, but time will tell how hard it is to get credit in the next six to 12 months.”

The mortgage broker also stated that he doesn’t believe falling house prices are to blame for the fall in investor activity, claiming that his investor clients are identifying opportunities in the softening housing market, but they are finding it harder to secure finance to fund property purchases.

“Investors would look at this market as a positive, because you start to get bargains, and there starts to be opportunities for clients that open up,” Mr Davis added.

“They just want us to get funding from a financial institution.”

Mr Davis also said that clients need to be better prepared when requesting finance as loan assessors require more information.

“Our investors are more inquisitive. They need to be more prepared and ready, and also they need to be more patient because the banks are asking for a lot of things that they would never have even thought about asking for six months ago,” the broker said.

[Related: RBA outlook ‘too optimistic’, say economists]