Investor lending dips to two-year low as property market slows

New lending to property investors has fallen to its lowest level in over two years, as banks run the ruler over prospective borrowers more carefully and house prices fall in Australia’s two biggest cities.

Official figures on Tuesday showed the value of new loan approvals to investors was at its lowest since the start of 2016, and economists expect there will be further slowing in the mortgage market.

The Australian Bureau of Statistics data showed the value of new loans to investors dropped 0.9 per cent in April, and 15 per cent in the past year. Loans to investors helped turbocharge Sydney and Melbourne’s property market in the boom of recent years, but Tuesday’s figures show bank lending to this part of the market has slowed markedly from its peak.

ANZ economist Daniel Gradwell said the proportion of total new lending going to investors fell to 42 per cent, the lowest since 2012, led by NSW and Victoria. This compares with a peak of 55 per cent in May 2015.

Mr Gradwell last week said the bank was revising down its house price forecasts, after a slump in prices that had been “quite a bit larger” than expected, and was likely to last longer than the bank previously forecast.

Lending to owner-occupiers has also softened, with the total number of new owner-occupied loans approved, excluding refinancing, falling to 35,304, the lowest since October 2016.

The drop in new lending was less severe than financial markets had expected, but economists said the figures still underlined the softening in the housing market, which they expect to continue over the short term.

Westpac economist Matthew Hassan said the recent decline in auction clearance rates pointed to a larger fall in new lending over the months ahead.

“More recent data, from auction markets, in particular, suggest the market has seen a further weakening since April, likely reflecting tighter lending criteria,” Mr Hassan said.

“With more stringent assessments also likely to delay loan processing, finance approvals could see a more significant decline in the next few months.”

Housing Industry Association principal economist Tim Reardon said the drop in lending to property investors were starting to result in slower growth in home building, which he expected to continue.

In recent years, the banking regulator has introduced new caps on lending to property investors, and for interest-only loans, which are favoured by investors for tax reasons.

“Investor lending has fallen by 27.4 per cent since reaching a peak in mid-2015, as a consequence of punitive restrictions on investors,” Mr Reardon said.

In the latest round of bank profits, top bankers said they expected the pace of loan growth would slow further over 2018, while ANZ Bank chief executive Shayne Elliott said the royal commission might make it harder for some customers to get a home loan.

Although the slowdown in credit growth is likely to drag on bank profit growth, credit rating agency Standard & Poor’s on Tuesday said it had become less concerned about “imbalances” in the mortgage market.

S&P said it thought the economic risk trend facing Australian banks was “positive” because the unwinding of risks in the housing market had so far been “orderly” and it expected this to continue.

“We believe that the ongoing orderly unwinding of imbalances – which were built up on the back of several years of strong growth in house prices and private debt – is likely to continue,” S&P said.

At the same time, S&P lowered its assessment of the Australian banks’ institutional framework and competitive dynamics from “very low risk” to “low risk” due to revelations at the royal commission into misconduct in financial services.

Article from: www.smh.com.au