Home lending to investors fell by 5.9% in February from the preceding month, a sign that tighter lending practices and higher interest rates are having an impact on demand.
Housing finance statistics released by the Australian Bureau of Statistics on Monday found that home lending rose 0.4% in trend terms from January to February but fell 2.7% in seasonally adjusted terms.
Owner occupied housing loans fell 0.5% and investor lending down 5.9% from January to February in seasonally adjusted terms. The 5.9% fall follows a rise in home loans to investors of 4.6% in January, suggesting either a sharp correction or monthly volatility.
Increasing efforts to tighten investor lending have been prompted by record house price growth, running at 12.9% on average nationwide in the past 12 months, and fears from the Reserve Bank that surging house prices are a threat to the economy.
Economist Emily Dabbs of Moody’s Analytics said the fall in investor lending was stronger than expected. Despite volatility month to month, investor lending has been falling since October.
“It’s likely to be the result of the regulator working with banks to tighten lending standards on investor loans,” she said. “Also, there was an increase in lending interest rates for investors out of step with RBA movements of the cash rate – all the major banks have increased investor rates – and those two measures have started to dampen demand.”
On 31 March, the Australian Prudential Regulation Authority imposed a new 30% limit on interest-only mortgage lending, on top of its existing 10% cap in the annual growth of investor lending. The new cap, not captured by the February figures, comes on top of efforts to tighten standards.
Paul Dales, the chief Australia and New Zealand economist at Capital Economics, said it was “tempting to suggest that the trend regulators have been looking for in housing demand – a fade in investment demand – has arrived” but the figures were volatile.
Although lending was down 2.7% this month, it had risen 1.7% the month before.
Dales said there were “tentative signs that housing demand is softening a little”.
“The general picture is that household willingness to borrow ... is slowing to some degree after a resurgence,” she said. “But the housing market has still appeared strong this year, by a number of indicators, which might suggest the recent strength is due to cash buyers from overseas.”
Dales said Apra’s decision would likely “reinforce” softening demand and expected it to slow investor demand and house price inflation as similar measures had in late 2014.
Last week new data from CoreLogic showed that house prices had soared by 19.65% in Sydney in the past year, while prices were also up in Melbourne (17.15%), Canberra (13.64%) and Hobart (11.05%).
On Tuesday the Reserve Bank governor, Philip Lowe, warned the cycle of surging house prices, where people are investing in residential property in the hope of ongoing capital gains, further fuelling house prices, is a risk to Australia’s economy.
He warned too many loans were still being made to borrowers with the “skinniest of income buffers” and says banks must stop issuing so many interest-only loans.
On Monday the treasurer, Scott Morrison, acknowledged the difficulties many had in entering the housing market at a speech to the Australian Housing and Urban Research Institute in Melbourne.
Morrison defended the Turnbull government’s refusal to clamp down on or abolish negative gearing, which allows property investors to deduct rental losses from other income.
