Banks Still Hooked On Mortgage Loans – New Investment Loans Up 19%

The latest APRA Property Exposure data, to September 2015 provides an additional perspective on the loan books of the ADI’s. Overall property exposures are a record $1.35 trillion, up from $1.33 trillion in June, and up 9% on September 2014. Within the mix, owner occupied loans rose from $810 bn to $841 bn, up 8.9% from 2014; in response to the changed lending environment, whilst investment loans for residential property fell from $517 bn to $514 bn, the first fall in a long long time (APRA data goes back to 2008), but still up 9.1% from September 2014.  Within the data we can see the adjustments which the ADI’s have made as they reclassify loans. A process which is not yet complete.

APRA-Ptpy-Sep-2015-6Investment loans comprise 37.9% of all loans, a fall from 38.9% last quarter, but still worryingly high, and higher than the regulators previously had thought.

APRA-Ptpy-Sep-2015-5Looking at some of the key characteristics of loans on book, 40% of loans (by value) have offset facilities, and 35% are interest only loans. There appears to be a slight slowing in the growth of interest only loans, reflecting the changed lending environment, and a slowing in investment lending.  But see below for data on new loans.

APRA-Ptpy-Sep-2015-4The volumes of new loans being written is still strong, with close to 100,000 being written each month. Owner-occupied loan approvals were $219.0 billion (59.8 per cent), an increase of $13.1 billion (6.4 per cent) from the year ending 30 September 2014;
investment loan approvals were $147.0 billion (40.2 per cent), an increase of $23.4 billion (19.0 per cent) from the year ending 30 September 2014.

APRA-Ptpy-Sep-2015-7The LVR splits show the bulk of loans are in the 60-80% band, and there is a fall in the LVR above 90% being written.

APRA-Ptpy-Sep-2015-2The distribution chart below shows this well, and also shows that around 24% of loans are still be written above 80% LVR – at a point in the cycle where house prices in Sydney and Melbourne are probably close to their peaks, and values are falling in some other states.

APRA-Ptpy-Sep-2015-3 Data on the characteristics of the new loans shows a fall in new interest only loans being approved (but still more than 40% of new loans are interest only, and as we know these contain more potential risks later). The proportion via brokers sits at 47.7%, just a tad lower than last quarter, but it shows how important the broker sector is, in terms of originating new loans. There are a small number of new loans still being approved outside standard serviceability, at 3.6% in the past quarter, slightly lower than then 3.8% in June, but still higher than in previous times. Given the tighter lending standards, this is a concern. Only 0.4% of new loans are low documentation loans via the ADI’s though more are being written via the non-bank lenders, and so are not caught in these figures.

APRA-Ptpy-Sep-2015-1

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

Leave a Reply