Housing finance data for November 2015 was released today but the Australian Bureau of Statistics (ABS). The data showed that on a seasonally adjusted basis, the value of housing finance commitments rose by 1.8% in November to $33.3 billion.
Looking at the different components of mortgage lending, it shows that the value of commitments to owner occupier non-first home buyers (subsequent buyers who are generally either upgrading or downgrading) is now greater than the value of commitments to investors. With mortgage rates remaining low and competition from lenders being fierce, refinance activity continued to trend higher while demand from the first home buyer segment of the market remains quite weak. As investment demand has faded, this demand has been replaced by demand from owner occupiers, mainly those upgrading or downgrading.
In November 2015 there was $21.8 billion worth of housing finance commitments to owner occupiers. These commitments were split between $1.9 billion for construction of dwellings, $1.2 billion for purchase of new properties, $7.1 billion for refinances and the remaining $11.6 billion for purchase of established properties. As the chart shows, demand for new properties (construction and purchase of new) is fairly flat while refinance commitments and those for the purchase of established homes continues to rise strongly. Interestingly after its recent low of $17.6 billion in commitments in May 2015, the value of owner occupier commitments has increased by 23.3% to November 2015. If you look at the actual number of owner occupier housing finance commitments over the same period they have increased by a much lower 11.8%. This would suggest that although the number of commitments to owner occupiers is rising, the increase in the value of commitments is being exacerbated by borrowers taking out larger mortgages.
The value of investor housing finance commitments was recorded at $11.5 billion in November 2015. Investor mortgage demand has fallen sharply since peaking at $14.2 billion in April 2015, down -18.7% to November 2015. Although investor mortgage demand has slowed sharply over recent months, it actually rose by 0.7% over the month. It is important to remember that the Australian Prudential Regulation Authority’s (APRA) guidelines aim to limit housing credit (total value of outstanding mortgages) to investors at 10% per annum. Investor credit growth was recorded at 9.1% over the year to November 2015, comfortably within these guidelines. Given this, it is no surprise we have seen a small bounce in investor mortgage demand and we may see further moderate increases over the coming months as lenders aim to grow investor credit at close to the 10% threshold.
Demand remains for mortgages despite the fact that banks have lifted mortgage rates independently of the Reserve Bank cash rate and have increased mortgage rates to investors. Understandably this has seen a slowing of demand from the investor segment of the market however, demand from owner occupiers is rising and currently filling the space. As previously mentioned demand from the investment segment may actually start to pick-up a little due to the fact investor credit growth is now comfortably below 10% per annum. With home value growth in Sydney and Melbourne now showing signs of slowing it will be interesting to see over the coming months whether mortgage demand continues to grow. If it does it may indicate that although demand in Sydney and Melbourne is slowing it is picking up elsewhere.