In a research note this week, AMP Capital chief economist Shane Oliver commented on the August housing finance figures from the Australian Bureau of Statistics, released Friday, which showed a 6.1 per cent increase in the value of owner-occupied loans and a 0.4 per cent drop in the value of investor loans.
The market was quick to take the results as evidence that APRA's regulatory action could be working, however Mr Oliver highlighted the possibility that the ABS figures could have been inflated by mortgage holders reclassifying their loans.
“Housing finance data shows a continuing decline in lending to investors versus owner-occupiers but the strength in lending to owner-occupiers is likely to have been exaggerated by the reclassification of some loans from ‘investor’ to ‘owner-occupier’,” Mr Oliver said.
“I suspect that the reclassification relates to old loans that started as investor loans and then remained investor loans even though the borrower moved into the property.
“This did not matter [prior to] the interest rate hikes on investor loans because the rate to the borrower was the same, but this is no longer the case so some borrowers would have wanted to be reclassified," he explained.
From the ABS view point, this would be seen as a new owner-occupier loan and therefore skew lending to owner-occupiers upwards, Mr Oliver said.
“No doubt APRA will be keeping a close eye on this,” he added.
The prevalence of mortgage reclassification was noted by the Reserve Bank when it released its financial aggregates for August. The figures showed that annualised investor credit growth slowed marginally to 10.7 per cent in August from 10.8 per cent in July.
“Growth rates for owner-occupier and investor housing credit reported in RBA Statistical Table D1 have been adjusted to take into account the fact that the purpose of a large number of loans was reported to have changed in August, mainly from investment to owner-occupation,” the RBA noted.
“Similar adjustments are likely to be required in coming months. However, the stocks of owner-occupier and investor housing credit reported in RBA Statistical Table D2 have not been adjusted. The total stock of housing credit and its rate of growth are unaffected by this change.”
CBA recently revealed that it is experiencing a ‘massive’ influx of borrowers seeking to reclassify their loans from investor to owner-occupier as the market adjusts to two-tiered pricing.
Sam Boer, CBA’s general manager of broking, told Mortgage Business that at its peak, CBA was seeing a couple of hundred requests per day, although that has now started to drop off.
“Just through our own data mining, we've found a lot of customers – and we're talking in the tens of thousands – who are living in their investment properties,” he said.
Last month, St. George Bank’s head of credit, Rob Love, admitted that the non-major lender has also had to implement new procedures to deal with an influx of investors switching to an owner-occupied loan.
Mr Love said the bank is currently measuring the number of customers who are switching their loans from investor to owner-occupied separately to its investor loan growth. He added that St. George is providing this information to APRA.
Vow Financial chief executive Tim Brown said that the reclassification of home loans will add greater complexity to the lending environment.
"Lenders will now have to come up with a list of questions that borrowers will have to answer or they'll have to show some type of identification to prove that they're actually living in their address,” Mr Brown said.
“I think that will probably be the next level of qualifying buyers to make sure they do qualify for a certain rate.”