Bank Mortgage Lending Falls

The latest data from APRA, the monthly banking stats to August 2017 shows the first overall fall in the value of mortgage loans held by the banks, for some time, so the macroprudential intervention can be said to be working – finally – perhaps! Or it could be more about the continued loan reclassification?

Overall the value of mortgage portfolio fell 0.11% to $1.57 trillion. Within that owner occupied lending rose 0.1% to $1.02 trillion while investment lending fell 0.54% to $550 billion. As a result, the proportion of loans for investment purposes fell to 34.93%.

This explains all the discounts and special offers we have been tracking in the past few weeks, as banks become more desperate to grow their books in a falling market.

Here are the monthly growth trends.

Portfolio movements across the banks were quite marked. There may be further switches, but we wont know until the RBA data comes out, and then only at an aggregate level. We suspect CBA did some switching…

The loan shares still show Westpac the largest lender on investor mortgages and CBA leading the pack on owner occupied loans.

All the majors are below the 10% investor loan speed limit.

So the question will be, have the non-bank sector picked up the slack? In fact the RBA says $1.7 billion of loans were switched in the month. This probably explains only some of the net fall.

 

Is The Mortgage Tide Receding?

APRA has released their monthly banking stats to July 2017. We see a significant slowing in the momentum of mortgage lending.  This data relates to the banks only. Their mortgage portfolio grew by 0.4% in the month to $1.58 trillion, the slowest rate for several month. This, on an annualised basis would still be twice the rate of inflation. Investment loans now comprise 35.08% of the portfolio, down a little, but still a significant market segment.

Owner occupied loans grew 0.5% to $1.02 trillion while investment loans grew just 0.085% to $552.7 billion. This is the slowest growth in investment loans for several years. So the brakes are being applied in response to the regulators.

Looking at the individual lenders, the portfolio movements are striking. CBA has dialed back investor loans, along with ANZ, while Westpac and NAB grew their portfolios. Westpac clearly is still writing significant business, but they expect to be within the interest only limit to meet the regulatory guidance.

The overall market shares have only slightly changed, with CBA the largest OO lender, and WBC the largest investor lender.

Looking at the 12m rolling growth, the market is now at around 4%, and all the majors are well below the 10% speed limit. Some smaller players are still speeding!

We will see what the RBA credit aggregates tell us about adjustment between owner occupied and investor lending, as well as non-bank participation. But it does look like the mortgage tide is going out. This could have a profound impact on the housing market.  It also shows how long it takes to turn a slow lumbering system around.

 

 

Home Lending Powers On (If You Believe The Figures)

The latest credit aggregates from the RBA to June 2017 shows continued home lending growth, up 0.5% in the month, or 6.6% annually. Business lending rose 0.9%, or 4.4% annually, and personal credit fell 0.1% or down 4.4% over the past year. However, they changed the seasonally adjusted assumptions, so it is hard to read the true picture, especially when we still have significant reclassification going on.  In original terms housing loans grew to $1.69 trillion, another record.

Investor home lending grew 0.5% or $3.13 billion, but this was adjusted down in the seasonal adjusted series to 0.2% or $1.13 billion. Owner occupied lending rose 0.9% or $9.83 billion in original terms, or 0.7% or $7.34 billion in adjusted terms. Business lending rose 1.2% of $11 billion in original terms or 0.9% of $7.61 billion in original terms. The chart below compares the relative movements.

The RBA says:

Historical levels and growth rates for the financial aggregates have been revised owing to the resubmission of data by some financial intermediaries, the re-estimation of seasonal factors and the incorporation of securitisation data.

… so here is another source of discontinuity in the numbers presented! The movements between original and seasonal adjusted series are significant larger now, and this is a concern. We think the RBA should justify its change of method. Once again, evidence of rubbery numbers!

The annualised growth rates highlight that investor lending is still strong relative to owner occupied loans, business lending recovered whilst personal finance continued its decline.

The more volatile monthly series show investor loans a little lower, while owner occupied loans rise further, and there is a large inflection in business lending.

We need to note that now $55 billion of loans have been reclassified between owner occupied and lending over the past year – with $1.3 billion switched in June. This is a worrying continued trend and raises more questions about the quality of the data presented by the RBA.

Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan; the net value of switching of loan purpose from investor to owner-occupier is estimated to have been $55 billion over the period of July 2015 to June 2017, of which $1.3 billion occurred in June 2017. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.

Finally they tell us:

All growth rates for the financial aggregates are seasonally adjusted, and adjusted for the effects of breaks in the series as recorded in the notes to the tables listed below. Data for the levels of financial aggregates are not adjusted for series breaks. The RBA credit aggregates measure credit provided by financial institutions operating domestically. They do not capture cross-border or non-intermediated lending.

So, given the noise in the data, it is possible to argue that either home lending is slowing, or it is not – all very convenient. The APRA data we discussed earlier is clearly showing momentum. Growth is still too strong.

It also makes it hard to read the true non-bank growth rates, but we think they are increasing their relative share as some banks dial back their new business.  Taking the non seasonally adjusted data from both APRA and RBA we think the non-bank sector has grown by about $5 billion in the past year to $115 billion. APRA will need to have a look at this, under their new additional responsibility, as we suspect some of the more risky lending is migrating to this less well regulated sector of the market.

Home Loans Still Rising Too Fast

The latest monthly banking statistics for July 2017 from APRA are out. It reconfirms that growth in the mortgage books of the banks is still growing too fast. The value of their mortgage books rose 0.63% in the month to $1.57 trillion. Within that, owner occupied loans rose 0.73% to $1,017 billion whilst investor loans rose 0.44% to $522 billion.

Investor loans were 35.18% of the portfolio.

The monthly growth rates continues to accelerate, with both owner occupied and investor loans growing (despite the weak regulatory intervention).  On an annual basis owner occupied loans are 6.9% higher than a year ago, and investor loans 4.8% higher. Both well above inflation and income growth, so household debt looks to rise further. The remarkable relative inaction by the regulators remains a mystery to me given these numbers. Whilst they jawbone about the risks of high household debt, they are not acting to control this growth.

Looking at individual lenders, there was no change in the overall ranking by share.

But interestingly, we see significant variations in strategy working through to changes in the majors month on month portfolio movements.

ANZ has focussed on growing its owner occupied book, WBC is still in growth mode on both fronts, whilst CBA dropped their investor portfolio. We also saw a number of smaller lenders expand their books.

Looking at the speed limit on investor loans – 10% is too high -we see the investor market at 5% (sum of monthly movements), with all the majors well below the limit. But some smaller players are still growing faster.

We have to conclude one of two things. Either the regulators are not serious about slowing household debt growth, and the recent language is simply lip service (after all the strategy has been to use households as the growth engine as the mining sector faded), or they are hoping their interventions so far will work though, given time. Well given the recent auction results (still strong) and the loan growth (still strong) we do not believe enough is being done. Time is not their friend.

Indeed, later this week we will release our mortgage stress update. We suspect households will continue to have debt issues, and this will be exacerbated by interest rate rises in a flat income, high cost growth scenario many households are facing. The bigger the debt burden, the longer it will be to work through the system, with major economic ramifications meantime.

The RBA data will be out later, and we will see if there have been more loans switched between category, and whether non-banks are also growing their books. Both are likely.

 

 

Mortgage Lending Remains Too Strong

The monthly banking stats from APRA for May 2017 were released today. The banks lifted their mortgage books by $9.2 billion to $1.56 trillion, up 0.6% in the month, still well ahead of income growth, thus household debt is still rising. The APRA controls are not strong enough.

Within this, owner occupied loans grew 0.7% to $1,010 billion and investment loans grew 0.42% to $549.9 billion (higher than the 0.39% last month). The proportion of loans for investment purposes stands at 35.4% on  a portfolio basis.

Growth is accelerating, supported by stronger owner occupied lending – as expected seeing the change of emphasis we have seen from the banks.

Looking at the individual lenders, Westpac wrote the most investment loans (which may explain their recent moved to tighten criteria and reduce loan types).

There were small changes in market share, with CBA leading the way on owner occupied lending, and Westpac on investment loans, suggesting different risk profiles.

Finally, looking at the APRA speed limit, of 10%, the 12 month market growth for investment lending is sitting at 4.8% (sum of the monthly movements, as we still see a number of lenders above the limit, but not the majors.

A caveat, of course APRA uses its internal measures to assess growth, which may not be the same as the public disclosures.

So, we think further steps need to be taken to cool the mortgage market – too much debt is being loaded on to households in a rising interest rate, low/no income growth environment.  This also suggests home prices will continue to rise, after recent slowing trends were reported.

The RBA will release their credit aggregates shortly, and this will give a whole of market view. But debt growth just cannot continue at these levels.

Bank Mortgage Up To $1.55 Trillion

The latest data from APRA, the monthly banking statistics for April 2017, shows that mortgage book growth is still well above inflation and income growth, at 0.5% in the month. Total loans are now $1.55 trillion, up from $1.54 trillion last month and 4.5% across the 12 months.

An additional $8 billion of net loans were added, with owner occupied loans accounting for $5.8 billion and investment loans $2.1 billion.

Investment loans are 35% of the portfolio.

Looking at the monthly trends, we see that the growth in investment loans slowed slightly, rising by 0.39%, whilst owner occupied lending accelerated, rising by 0.59%. Overall growth was 0.5%.

Looking at the lending profiles, CBA grew their book the most, followed by ANZ. Members Equity Bank and AMP Bank also grew quite fast and above portfolio.

CBA still leads the owner occupied market, and is continuing to chase down Westpac in the investment sector, though has not yet overtaken.

Finally, looking at 12 month portfolio growth for investment loans, the majors are well under the APRA limit. Some smaller players are still speeding.

So, whilst we see some adjustment in terms of risks in the market, growth remains strong, which explains why the auction clearance rates remain strong.

Analysis of the RBA market figures, which includes the non-banks will follow.

Mortgage Lending Strong in March 2017

APRA have just released their monthly banking statistics for March 2017. Overall lending by the banks (ADI’s) rose $7.1 billion to $1.54 trillion, up 0.47% or 7.5% over the past 12 months, way, way ahead of income growth!

Owner occupied  loans grew by 0.49% to $998 billion and investment loans rose 0.43% to $545 billion. No slow down yet despite the recent regulatory “tightening” and interest rate rises. Investment loans are 35.3% of all book.  Housing debt will continue to climb, a worry in a low income growth environment, and unsustainable.

In fact the rate of lending is ACCELERATING!

Looking at the banks share of loans, the big four remain in relatively similar places.

The four majors grew the fastest whilst the regional banks  lost share.

Looking at the investment loan speed limits, the majors are “comfortably” below the 10% APRA limit. Some smaller players remain above.

So, the current changes to regulatory settings are not sufficient to control loan growth. Perhaps they are relying on tighter underwriting and rising mortgage rates to clip the speed, but remember many investors are negatively geared, so rising mortgage interest costs are actually born by the tax payer! The only thing which will slow the loan growth is if home prices start to fall.

The RBA data comes out shortly, this will give a view of all lending, including the non-bank sector (though partial, and delayed).

 

Banks and Investment Lending – The Non-Bank Winners!

APRA released their monthly statistics for February 2017 today. Overall lending for housing rose 0.4% (which is lower than the market rate of 0.6%, implying the non-bank sector is growing faster, and may account for APRA today saying they wanted to limit the bank’s ability to warehouse mortgages for other lenders prior to their securitisation).

This means the banks total book is now worth $1.54 trillion. Within that owner occupied loans rose 0.48% to $993 billion, whilst investment loans rose 0.33% to $543 billion, or 35.4%.  This tells us that more investors are going to the non-banks – which are not regulated by APRA, but by ASIC as commercial companies – and they do not have the same capital requirements as the banks – this is a major regulatory blind-spot.

Looking at the ADI’s portfolio movements, CBA wrote the net largest loan volumes, followed by ANZ, then NAB. Westpac had the weakest growth among the big four. Among the smaller players, Bank of Queensland went backwards, whilst ME Bank and and AMP Bank grew relatively strongly.

The overall market share of the majors show CBA with the largest share of the OO market, and Westpac still in pole position (just) on investment loans. ANZ has a larger share than NAB of owner occupied loans, whilst in the investment loan sector, the position is reversed.

  The APRA speed limit of 10% is higher than the annualised growth rate (which we calculate by summing the monthly movements from APRA), and we see that all the major players are “comfortably below” the 10%.

All in all then, we think the banks will still be writing more investment loans, and as a result, we expect the investor lending party will continue until such time as the tax breaks are reduced (which just might happen in the budget?). Therefore home prices are set to continue to push higher, as household debt rises higher.  In addition, the out of cycle rises on investor loans will bolster bank profits, whilst the additional interest costs will be born by tax payers, as investors who are negatively geared offset the higher borrowing costs. There is nothing here that will fundamentally change the trajectory of the market.

One final point, APRA in their earlier release mentioned the Council of Financial Regulators, the body where the Treasury, RBA APRA and ASIC all sit to discuss strategy, so we have to assume there was agreement to adopt the current stance across these bodies.

 

ADI’s Still Growing Their Mortgage Books

The latest ADI data from APRA, to end January 2017 shows that the banks  have $1,529 billion in mortgage loan stock, up from $1,523 billion in December, a rise of nearly $6 billion.  The RBA credit number was $1,637.4 billion, up 1% or $15.2 billion, suggesting the non-banks have been more active recently.

When we dig into the mix between owner occupied and investment loans, we need to make an adjustment to the December numbers where ING had (we estimate) about $3 billion of investment loans reported as owner occupied loans. This was reversed this month, so a casual observer will pick a stronger growth in investment loans than is the case. Nothing in the APRA release mentions this significant movement – again!

We think owner occupied loans grew by $3.9 billion and investment loans by $1.7 billion.

The corrected movements over the months look like this, with average growth around 0.4%, down from December. Given the holidays, no surprise.

This is the silly chart you get if you do not adjust the ING reversal, with investment loans at 0.9%.

In the month, and using the adjusted data, we see CBA wrote the most loans, with Westpac and NAB in joint second place. ANZ reduced its portfolio a little.

Here is the same data, but now with ING showing the offsetting changes from last month.

CBA has the largest share of OO loans, and WBC of investment loans, though CBA was catching up prior to the recently announced changes to investment lending policies.

Here is a map of the 10% speed limit. We added a year’s worth of portfolio movements to get this data (though others may choose to gross up the past 3 or 6 months). However, on this basis, CBA is running closer to the 10% speed limit which APRA reconfirmed recently.

Tighter underwriting requirements from APRA are likely to reduce future loan growth, but we reached yet another record in January.

 

APRA Says Banks Home Lending Up In December … But

APRA has released their monthly banking statistics, which shows the portfolio movements of the major banks. Total lending for housing was up 0.68% to $1.52 trillion, with owner occupied lending up 1% to $987 billion and investment lending up 0.06% to $537 trillion. But there are adjustments in these numbers which make them pretty useless, especially when looking at the mix between investment and owner occupied loans.

The trend here is quite different from the RBA data also out today, which showed growth of 0.8% for investment loans and 0.4% for owner occupied loans (and includes non-banks in these totals). A quick look at the monthly movements shows that there was a significant ($3bn+) adjustment at ING, which distorts the overall picture. No explanation from APRA, and this movement is much bigger than the $0.9 billion net figure the RBA mentioned in their release.

For what it is worth, here is the sorted 12 month growth trend by lending, showing the 10% “hurdle”. ING is to the right of the chart thanks to their adjustment.

But the point is, we really do not know where we stand as i) data quality from the banks is still poor, and ii) the regulators are unable to provide a reconciled and transparent picture of lending. Given the debate about housing affordability, we need better and consistent data to aid the debate.