According to the Australian Prudential Regulation Authority’s (APRA) latest quarterly residential property exposure statistics for authorised deposit-taking institutions (ADIs), new home lending volumes dropped by $11.9 billion (12 per cent) in the three months to 31 December 2018, from $100.1 billion in the December quarter of 2017 to $88.2 billion.
Further, over the year to 31 December 2018, new home lending settlements fell by $25.1 billion (6.5 per cent), from $384.4 billion in the previous corresponding period to $359.3 billion.
The decline was driven by a sharp drop in new investment lending, which fell by $17.7 billion (14 per cent), from $126.9 billion to $109.2 billion over the 12 months to 31 December 2018.
While less pronounced, owner-occupied volumes also dropped, contracting by $7.4 billion (2.9 per cent), from $257.5 billion to $250.1 billion over the same period.
In total, the portion of new home loans issued to owner-occupiers grew to 69.6 per cent, while the percentage of loans issued to investors dropping to 30.4 per cent.
The decline in lending volumes over the year to 31 December 2018 coincides with weakened demand in the credit and housing space, triggered by the tightening of lending criteria imposed by ADIs amid regulatory scrutiny.
The reduced risk appetite among lenders was reflected in the considerable fall in interest-only volumes and declines in high-LVR (loan-to-value ratio) issuance.
New interest-only home loan volumes contracted by $38.6 billion (38.8 per cent), from $96.3 billion in the year to 31 December 2017 to $57.7 billion. The overall share of interest-only loans slipped to 16.1 per cent over the same period.
APRA also reported that in the issuance of housing loans with an LVR between 80 and 90 per cent declined by $4.5 billion (8.4 per cent), while the number of mortgages issued with an LVR of over 90 per cent declined by $3.8 billion (13.7 per cent).
As a result of the reduction in new mortgage lending volumes, the ADI sector’s total residential mortgage portfolio grew by $75.8 billion (4.8 per cent) over the year to 31 December 2018, compared to $92.9 billion (6.3 per cent) growth in the previous year.
As at 31 December 2018, the banking sector’s home loan portfolio totalled $1.65 trillion, with owner-occupied loans making up $1.1 trillion (67 per cent) of the portfolio and investor loans making up $546.2 billion (33 per cent) of mortgages managed by ADIs.
However, the APRA data revealed that despite the continued decline in dwelling values across the country, the average loan size increased over the year to 31 December 2018, from $267,000 to $276,000.
The overall drop-off in home lending activity has also coincided with a reduction in total net profit after tax (NPAT) reported by ADIs.
APRA’s latest quarterly performance statistics have revealed that over the same period (year to 31 December 2018), the cumulative NPAT of the banking sector declined by $400 million (0.9 per cent), from $36.1 billion to $35.7 billion.
Member-owned banks weather the storm
APRA’S residential property exposure data has revealed that the customer-owned banking sector has fared better than its ADI peers.
Over the 12 months to 31 December 2018, customer-owned banking institutions grew their total housing loan book by 8.1 per cent compared to 4.5 per cent among ADIs.
Customer Owned Banking Association CEO Michael Lawrence said the data has shown that Australians are increasingly seeking finance alternatives.
“This data shows that Australians want banking institutions that put them first, and they’re willing to switch institutions to get it,” he said.
“After 12 months of scandalous hearings into banking misconduct and poor practices, it’s no surprise that our sector has seen growth rates like these.
“These figures will be a wake-up call for the ‘big four’ and make them reconsider how they treat their customers.”
Charbel Kadib is a journalist on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel held roles with public relations agency Fifty Acres, and the Department of Communications and the Arts.
Charbel graduated from the University of Notre Dame Australia with a Bachelor of Arts (Politics & Journalism).