‘Triple tailwinds’ could double mortgage growth

Following its analysis of home lending growth in the Australian mortgage market, global investment bank Morgan Stanley found that in April, mortgage growth among the big four banks hit a new record low of 2.3 per cent year-on-year, 1.8 per cent below system (4.1 per cent).

In comparison, non-major banks and non-bank lenders reported growth of approximately 8 per cent and 16 per cent, respectively.

Morgan Stanley made particular reference to continually weak home lending growth reported by ANZ and NAB.  

The latest monthly banking statistics from the Australian Prudential Regulation Authority (APRA) revealed that, in April, ANZ and NAB’s mortgage books thinned by approximately $500 million and $100 million, respectively.

ANZ has suffered the largest hit to its home loan portfolio in the 2019 calendar year, with its book contracting by a total of $2.4 billion in the four months ending 30 April.

However, Morgan Stanley expects the fortunes of the major banks to change off the back of recent political and economic developments.  

The global investment bank has revised its forecasts for major bank mortgage growth from 2 per cent growth in the 2020 financial year (FY20) to 4 per cent growth.

Morgan Stanley noted that its revisions has come off the back of what it described as “triple tailwinds”, which have emerged off the back of policy certainty surrounding proposed changes to negative gearing and the capital gains tax, the cut to the official cash rate, and APRA’s proposal to ease its mortgage serviceability guidelines.

Morgan Stanley made reference to remarks from Commonwealth Bank CEO Matt Comyn, who noted a spike in home loan applications following the 2019 federal election.

“I think, in particular at the moment, quite rightly, there is a strong interest in property,” Mr Comyn said.

“We did have the strongest week in applications that we have seen in more than six months. It did feel – certainly from a demand perspective – there is quite a shift in sentiment.”

However, despite forecasting a doubling in home lending growth, Morgan Stanley stated that several headwinds “remain in play” and could hinder a lending rebound.  

The headwinds cited by Morgan Stanley include:

• The Australian Securities and Investments Commission’s new responsible lending proposals could further increase scrutiny of expenses
• LVR constraints that have emerged as a result of falling house prices
• The switching of interest-only loans to principal and interest
• The expansion of comprehensive credit reporting to mortgages in September 2019

The Morgan Stanley analysis coincided with the release of the latest Lending to Households and Businesses data from the Australian Bureau of Statistics (ABS), which reported a 0.2 per cent rise in the value of housing finance commitments in April.

The bump in the value of housing finance commitments was driven by growth in the value of owner-occupied lending, which increased by 1 per cent over the month, recovering from a 3.4 per cent slide in March.

Reflecting on the data, ANZ Research observed that the uptick was a sign that “green shoots” are appearing in the mortgage market.

[Related: Owner-occupiers fuelling lending bounce]