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Value of ‘switching’ loans hits $43bn

Borrowers continue to switch the purpose of their mortgages from investor to owner-occupier more than a year after two-tiered pricing was introduced.

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan, according to the Reserve Bank of Australia.

“The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $43 billion over the period of July 2015 to July 2016, of which $1.0 billion occurred in July,” the RBA said. “These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.”

The latest financial aggregates data from the Reserve Bank show $552.6 billion in investor home loans were written in July this year, down 3.2 per cent on July 2015.

Investor credit growth has slowed significantly over the 12 months to July 2016 compared to the previous period. Investor credit surged 10.5 per cent between July 2014 and July 2015, where it peaked at $570 billion.

However, investor loans have recently gathered momentum with the latest housing finance figures from the ABS showing that investor loans increased 3.2 per cent in June and 3.9 per cent in May.

AMP Capital chief economist Shane Oliver said investor lending is having a bit of a bounce after growth in the total bank book of lending to investors fell way below the APRA 10 per cent limit.

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“But it’s doubtful that investor lending will be allowed to pick up too far as there is a good chance that APRA will lower the 10 per cent limit to around 7-8 per cent,” he said.

APRA’s macroprudential measures so far include keeping lending to investors below 10 per cent annual growth and raising capital adequacy requirements for the major banks and Macquarie.

The regulatory action was taken following a strong surge in property prices in Sydney, where house prices have risen by more than 50 per cent in three years, and to a lesser extent in Melbourne.

ANZ economists noted that increased regulation initially saw demand for housing ease toward the end of 2015, but the market has since been more robust than anticipated.

[Related: 'Tens of thousands' switching out of investor loan, says CBA]

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