Fears are mounting that the prudential regulator may have to do more to slow down home lending growth following a surprise bounce in Sydney and Melbourne property prices.
AMP Capital chief economist Shane Oliver said a renewed surge in Sydney and Melbourne property prices provides a challenge for the RBA in assessing the economy.
CoreLogic RP Data figures released this week show combined capital city average home prices rose 1.6 per cent in May and 10 per cent year-on-year, driven by a 3.1 per cent rise in Sydney home values over May and a 1.6 per cent rise in Melbourne over the same month.
“After slowing through the latter part of last year, momentum in Sydney and Melbourne property prices have rebounded, perhaps as the initial impact of APRA’s tightening measures have worn off and growth in lending to owner-occupiers picked up,” Mr Oliver said.
“The bounce back in Sydney and Melbourne property prices is a concern, particularly with annual price growth for units now running above that for houses and the approval of new units driving a renewed pick-up in building approvals. This despite rising concerns about an oversupply of units in several capital cities.”
Mr Oliver said the bounce in Sydney and Melbourne property prices could be temporary as it appears to be coming with low sales volumes in Sydney.
“If not, there will be more work for APRA to try and further slow down lending growth,” he said.
CoreLogic RP Data head of research Tim Lawless noted that the number of events across CoreLogic’s valuation platforms, which account for more than 95 per cent of bank valuation instructions, are up 6.7 per cent over the past 28 days, signalling an increase in mortgage-related activity.
“The extent to which investors are fuelling the latest surge in Sydney home values is difficult to quantify. However, housing finance data to March shows investors, as a proportion of all new mortgage commitments, have been trending higher since reaching a recent trough in November last year at 42.9 per cent,” Mr Lawless said.
“The March data shows investors now comprise of 47.6 per cent of all new mortgage commitments which is the highest proportional reading since August last year.
“Anecdotal evidence suggests investor numbers may have increased further from this time, with some lenders reversing the tighter lending requirements that were previously in place for investment purposes as growth in investor-related credit tracks well under the APRA speed limit of 10 per cent per annum.”
Some banks have significantly transformed their mortgage books to meet the APRA guidelines, providing them with room to grab more share of the investor market.
For example, the composition of Westpac’s mortgage portfolio has undergone a significant change over the last 12 months compared to its peers.
APRA Monthly Banking Statistics show Westpac’s total mortgage book was valued at $356 billion at 29 February, up 8.1 per cent from February 2015.
However, a closer look at the composition of the bank’s book reveals a 22.7 per cent surge in owner-occupied lending over the year, while the group’s investor loan book fell by 9.5 per cent over the same period.
In comparison, all other majors grew their investor loan books over the 12 months to 29 February. ANZ recorded a 2.9 per cent increase, CBA grew its investor loan book by 3.0 per cent and NAB by 9.3 per cent.
Westpac announced last week that it had increased the maximum LVR for its investment loan products from 80 per cent to 90 per cent. The major lender was the only one of the big four to drop to 80 per cent and the change brings the bank in line with its three key competitors.
CoreLogic’s Mr Lawless noted that the latest housing credit growth figures show that investor housing credit has advanced by just 7.1 per cent over the past year, its slowest annual growth rate since November 2013.
“Based on this, lenders now have scope to increase lending to investors,” he said.
“Lower mortgage rates are likely to have a positive effect on consumer confidence and housing market conditions, with the standard variable mortgage rate now at its lowest level since 1968.”
Mr Lawless said while the annual pace of growth has clearly reversed direction on the latest few months of data, the trend is still relatively fresh and may be short-lived.
“Despite lower mortgage rates in May, lending conditions are tighter now than they were a year ago.
“Recent data from APRA highlights that interest only lending is now at its lowest level since March 2013 and new mortgages with an LVR higher than 90 per cent are at the lowest reading since March 2011.
“With the federal election only a month away, we can expect housing to remain in the spotlight more than usual,” Mr Lawless said.
[Related: Westpac transforms home loan book]