Lending to investors rises as owner occupier lending cools

The Australian Bureau of Statistics released housing finance data for March 2016 earlier this week.  The data showed that the total value of housing finance commitments was recorded at $32.7 billion which was -0.2% lower over the month but 1.2% higher year-on-year.

Chart 1

In March 2016, $20.7 billion or 63.3% of all mortgage lending was to owner occupiers.  The $20.7 billion consisted of $1.8 billion for construction of dwellings, $0.9 billion for purchase of new dwellings, $7.0 billion for refinances of established dwellings and $11.1 billion for purchase of established dwellings.  All categories of owner occupier housing finance fell over the month, with total owner occupier housing finance commitments -1.2% lower in March 2016.  Year-on-year, the value of owner occupier housing finance commitments is 11.8% higher with the changes across the components recorded at: +1.7% for construction of dwellings, -7.9% for purchase of new dwellings, +14.7% for refinances of established dwellings and +13.9% for purchases of established dwellings.  Although the refinance segment has grown substantially over recent years, it has now fallen for three successive months.  Whether this is fewer people looking for a better home loan or fewer people using their equity to reinvest remains to be seen, but it is an interesting emerging trend.  Importantly, owner occupier housing finance commitments for new stock (construction and purchase of new) accounts for 13.0% of total housing finance commitment and 19.6% if you exclude refinances.

Chart 2

The remaining 36.7% of mortgage lending, accounting for $12 billion worth of lending, is the investment segment.  Across this segment, there was a record-high $1.8 billion in commitments for construction and $10.2 billion in commitments for established housing.  While commitments for new construction are at a record-high, the value of investor commitments for established housing are at their lowest level since February 2014.  The value of year-on-year investor commitments for construction of dwellings are 97.1% higher while commitments for established housing are -20.9% lower.  Although commitments for new stock are rising, it still accounts for just 15.2% of total investor housing finance commitments.  The total value of investor housing finance commitments is now -15.4% lower than its April 2015 peak.

Chart 3

Looking at the growth trend in housing finance, it shows that market momentum is slowing.  The year-on-year change in housing finance commitments (excluding refinances) is -1.9%.  As the above chart shows, slowing growth in housing finance commitments typically acts as a precursor to slowing value growth across the capital cities.  We have already seen the annual rate of home value growth slow from a recent peak of 11.1% in July 2015 and with demand for mortgages slowing it is reasonable to expect that the rate of value growth is likely to also slow.

This Friday, the ABS will release lending finance data which allows further insight into the value of housing finance commitments across each state.  It will be really interesting to see how investment lending in particular is tracking across each region.

With owner occupier and investor lending for established stock and refinances continuing to cool this should lead to a further slowing of value growth in the housing market.  The recent pick up in investor lending for new construction looks curious, especially considering tighter investor lending criteria and higher interest rates.  We will be watching closely over the coming months to see the direction of this segment of investor lending.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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