The Property Imperative Weekly – May 20th 2017

The latest edition of our weekly roundup of property, finance and economics review is available. We discuss the latest economic news, recent developments in the bank tax debate and the latest mortgage pricing and volume data.

Watch the video or read the transcript.

This week, the latest updates from the ABS showed that the trend unemployment rate stuck at 5.8%, thanks to a large rise in part-time employment. In fact, employment was up by a very strong 37,400 in April after increasing by a massive 60,000 in March but the total hours worked was reported to have fallen by 0.3% in April and was down by 0.1% over the past two months. This may be because of changes in the ABS sampling. Many commentators suggest the true position in worse, but we do know that unemployment was above 7% in South Australia, and the number of older people seeking work also rose.

The latest wages data, showed that the seasonally adjusted Wage Price Index rose 0.5 per cent in the March quarter 2017 and 1.9 per cent over the year, according to ABS figures. This makes a bit of a joke  of the strong wages growth rates predicated in the recent budget.

The seasonally adjusted, Wage Price Index has recorded quarterly wages growth in the range of 0.4 to 0.6 per cent for the last 12 quarters. However, private sector wages rose 1.8 per cent whilst public sector wages grew 2.4 per cent, so public servants are doing better than the rest of the population.

The pincer movement of higher inflation and lower wage growth now means that average wages are falling in real terms, especially for employees in the private sector.  Not good for those with mortgages as rates rise flow though. This aligns with our Mortgage Stress data.

There was further heated debate about the Bank levy, with the Treasurer saying on ABC Insiders that the impost was a permanent measure and linked to the strong profits and competitive advantage the big four have thanks to the “too-big-to-fail” implicit guarantee from the government. He again said the costs of the tax should not be passed on to customers.

On the other hand, the banks put their own slant on the issue, saying that the costs would be passed on, and the levy was bad policy. Ex Treasury Boss Ken Henry, now the Chairman of NAB, suggested there should be an inquiry into the proposed tax and said it looked like something from the eighties, before all the free market reform.

The banks made submissions to the Treasury complaining about the short timeframes, and seeking a delay in implementation.  ANZ suggested a delay till September 2017 to allow sufficient time for design of the legislation and also recommended the tax should be applied to the domestic liabilities of all banks operating in Australia with global liabilities above $100 billion. They concluded “There is no ‘magic pudding’. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees”.

But the real debate should be framed by the excess profits the big banks make, and the unequal position the big four have thanks to the implicit government guarantee, meaning they can out compete regional and smaller lenders. In fact, the value of this subsidy is significantly higher than the 6 basis points being imposed. These are the very high stakes in play, and the outcome will significantly impact the future shape of banking in Australia.  In fact, you could argue the big four receive the largest subsidies of any industry in the country – way more than, for example, the entire car industry.

In addition, the Australian Bankers Association is caught trying to represent the interest of the big four, and other regional players, including some who have supported the tax on the basis of it helping to level the competitive landscape. The ABA issued a statement to say there was no division, but there clearly is. Not pretty. Some have suggested the smaller players should create their own separate lobby group.

The latest lending data from the ABS showed that the mix of lending is still too biased towards unproductive home lending, at the expense of lending for commercial purposes. Overall trend finance flow in trend terms rose 1.3% to $70 billion, up $691 million. The total value of owner occupied housing commitments excluding alterations and additions rose 0.1% in trend terms, to $20.1 billion, up $26 million. Within the fixed commercial lending category, lending for investment housing fell 0.3%, down $44 million to $13.2 billion, whilst lending for other commercial purposes fell 2%, down $416 million to $20.3 billion. 39% of fixed commercial lending was for investment housing and this continues to climb.  Most of the investment in housing was in Sydney and Melbourne.

The more detailed housing finance data showed that the number of owner occupied first time buyers rose in March by 20.5% to 7,946 in original terms, a rise of 1,350.  In original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments rose to 13.6% in March 2017 from 13.3% in February 2017.

The DFA surveys saw a small rise in first time buyers going to the investment sector for their first property purchase. Total first time buyers were up 12.3% to 12,756, still well below their peak from 2011 when they comprised more than 30% of all transactions. Many are being priced out or cannot get finance.

Lenders continued to tighten their underwriting standards for interest only loans, with CBA, for example, ending discounts, fee rebates and dropping the LVR to 80%, having in recent months imposed no less than three rate rises on the sector. ANZ tightened their lending parameters too, with the maximum interest only period reduced from 10 years to five years, tightening LVRs and imposing other restrictions.

Overall we think the supply of investor loans will reduce, and that smaller lenders and non-banks will not be able to meet the gap, so we are expecting loan growth to slow further, and the price of loans to rise again.

We also saw auction clearances stronger last weekend, so this confirms our survey results, that households still have an appetite for property, despite tighter lending conditions. Recent stock market falls and greater market volatility will play into the mix now, so we think there will be a tussle between demand for property, especially for investment purposes and supply of finance.

Brokers may well get caught in the cross-fire, and the recent UBS report suggesting that brokers are over-paid for what they do, will not help.  Others have argued UBS got their sums wrong, and denounced the report as “ridiculous”.

It is still too soon to know whether home price growth is really likely to turn, but the strong demand still evident in Sydney and Melbourne suggests momentum will continue for as long as credit is available at a reasonable price. So I would not write off the market yet!

And that’s it from the Property Imperative Weekly this time. Check back for next week’s summary.

The Property Imperative Weekly 12th May 2017

The latest edition of our weekly digest is published today. In the week the big banks copped it in the budget, and investor borrowing momentum is predicted to slow, we look at events over the past seven days. Watch the video, or read the transcript.

We start with the main announcements in the Budget. First there is the $6 billion liabilities levy to be imposed on the big four banks and Macquarie. Whilst many were surprised by this move, the fact is that banks around the world are getting hit with various taxes and levies and we have some of the most profitable banks in the world, not because they are really expert managers, but because of the structural issues which exist here.

Most of the tax grabs around the world are aligned to providing extra support in case a bank failures, but others are now using the income to support general government spending. In some ways the banks are easy targets, given their massive incomes, and poor public perception, but in our view the move looks more like a late tax grab to fill a hole than clear sighted policy. Of course the banks squealed, whilst smaller players suggested it might help to level the competitive playing field. Banks have so many ways to recover such an impost, that despite the mandate given to the ACCC to monitor price changes, we think consumers and small business will pay, and so it is really just another indirect tax. The Government linked the move to the earlier Financial System Inquiry as part of making Banks “Unquestionably Strong”, but this is a long bow.

We think the other developments relating to banking in the budget are perhaps more significant. APRA is to be given extra powers to supervise the growing non-bank sector, which may help to cool the supply of higher risk mortgages. Bank executives will be on a register and risk being delisted if they do the wrong thing. This is all about tightening the bank system further, and it makes good sense. It also represents a vote of no-confidence in their self-managed campaigns to improve the culture in banks, and which do not necessarily get to the heart of the issues which need to be addressed.

But it is the Productivity Commission review of the financial system, and especially the issues around vertical and horizontal integration which may have the most profound impact. Today, the large financial conglomerates control hosts of financial advisers and mortgage brokers, as well as branch networks and other channels, and play across the spectrum from retail banking, through wealth management and Insurance. But such integration means that smaller players cannot compete, and large players are able to dictate prices across the system. As a result, Australians are paying more for their financial services than they should, many sectors are making excess profits, and competition is just not working. So the big question becomes, will the Productive Commission get to the heart of the issues, and can the financial services omelette be unscrambled?

Going back to the levy for a moment, we cannot figure why Macquarie is caught along with the big four, who are classified by APRA as Domestically Significant Banks or D-SIBS. The basis of selection appears to be a quick back of the envelope assessment of the size of liabilities (less consumer deposits below $250k and Basel Capital).  The fact is the major banks have an implicit government guarantee that in case of emergency they would be bailed out. As a result, they can raise funds more cheaply. This is worth way more than the 6 basis points of the levy, so you could argue they are getting off cheaply.

The first half  results from Westpac were good in parts, but although declared profit was up, this was thanks mainly to trading income which may not be repeatable, whilst net interest income was down 4 basis points and consumer provisions were higher. Again consumer debt in Western Australia was an issue. The number of consumer properties in possession rose from 261 a year ago to 382 in Mar 17. Investment property 90+ day delinquencies rose from 38 basis points to 47 basis points. They hope the recent mortgage repricing will help to repair their net interest margin in the second half.

CBA who reported its Q3 trading update also said margin was under pressure and defaults in WA were higher.

We published our top ten post codes with households at risk of mortgage default, and Western Australia came out the worst. In top spot, at number one, is 6210, Mandurah. This also includes suburbs such as Meadow Springs and Dudley Park. Mandurah is a southwest coast suburb, 65 kilometres from Perth. The average home price is around $300,000 and has fallen from $340,000 since 2014. Here there are 1,430 households in mortgage stress but we estimate 388 are at risk of default in the next few months.

Our surveys also highlighted that financial confidence slipped in April, with investor households a little less confident, and our surveys also showed that less property investors are planning to purchase property in the next 12 months, thanks to the impact of higher mortgage rates and less availability of finance. Our core model suggest that investor loan growth is set to fall from around 7% down to 1 to 2 % in coming months. This will have a profound impact on the property market and the banks.

It may also impact the stamp duty flowing to most states. Data this week highlighted that taxation revenue from housing continued to climb. State and local governments collected about 52% of their total taxation revenue from property, a record which was worth almost $50 billion. So if property momentum does sag, there are significant economic consequences.

We also saw a sag in retail spending and in new building approvals, more evidence that the economy is on a knife edge. However, Auction clearance rates were still strong though, if on lower volumes and job adverts were stronger too, so it’s not all bad news.

And finally back to the budget and its approach to housing affordability. There was a raft of measures announced, some focussing on land release and other supply measures, as well as the option to save for a deposit in a super account tax shelter, and the ability for down-traders to put proceeds back into their super accounts (but no extra tax breaks there). One headline-grabber was the creation of a new entity, the National Housing Finance and Investment Corporation. This will source private funds for on-lending to affordable housing providers to finance rental housing development. However, the bigger issue for the sector remains federal and state funding.

There were very minor tweaks to the negative gearing tax breaks which may adversely hit investors in regional areas, but the perks remain pretty much intact. In fact, if you add up all the measures, we do not think they will fundamentally solve the housing affordability conundrum.

And that’s the Property Imperative Week. Check back next time for more news.

The Property Imperative Weekly 6th May 2017

The latest edition of our weekly summary of events in the finance and property industry has been released, a week in which the RBA told us more about household finances, major banks reported lifts in delinquencies and the number of households in mortgage stress continued to rise.

You can watch our video summary.

We start our review of the week by looking at data from the RBA. They held the cash rate again, and in a speech Governor Philip Lowe said the bank is not overly concerned that a “severe correction in property prices” would trigger a banking collapse, as happened in the US in 2008-09. However, he was far more worried that Australians would bring the economy to a grinding halt by curbing their spending. He said Household debt is “high” relative to incomes, making it likely that many Australians would respond to a market correction with a “sharp correction in their spending”, in an attempt to pay down debt. As a result, an otherwise manageable downturn could be turned into something more serious.

He also made the point that allowing young Australians to use their superannuation for a deposit will not assist affordability and downplayed the importance of tax policies. “The best housing policy is really a transport policy,” he said during a question-and-answer session. The latest RBA chart showed household debt rose again.

The Quarterly Monetary statement highlighted the risks from low income growth, although the underlying causes are not that clear, and that the Bank is still relatively optimistic about future growth. However, again the theme of high household debt came to the fore with data showing that one third of households had no mortgage repayment buffer. It’s worth saying this data comes from securitised loans which may be regarded as the cream of the crop, so risks in other portfolios may be higher.

We have several results in the week, with impressive full year numbers from Macquarie; but less impressive results from NAB, ANZ and Genworth, the Lenders Mortgage Insurer. From this we learnt that delinquencies are rising, especially in the mining heavy states of WA and QLD. Genworth in particular reported a rise in claims. Whilst tighter lending rules are lower the LVR bands, heightened risks seem to be baked in.  Yellow Brick Road, who also reported, highlighted the impact of recent regulatory tightening on the mortgage sector.

We also saw how the retail banks net interest margins are under pressure, this despite recent mortgage rate rises, and hikes to the small business sector, which is the soft underbelly of the portfolio when banks seek to recover NIM. NIM is being hit by the higher capital requirements which are being imposed on the banks. This suggests that more out of cycle rate rises are likely, despite the fact that funding costs appear to have stabilised.

According to the HIA, new home sales fell slightly in March down 1.1% mainly due to fall in new houses; but there were significant state variations, with NSW the only state to record an increase in detached house sales, posting a 10.4 per cent rebound after a soft result in February. Detached house sales fell by 4.6 per cent in Victoria, by 5.4 per cent in Queensland and fell in South Australia and Western Australia by 1.7 per cent and 1.2 per cent respectively.

We released the latest mortgage stress report, which showed of the 3.1 million mortgaged households, an estimated 767,000 are now experiencing mortgage stress. This is a 1.5% rise from the previous month and maintains the trends we have observed in the past 12 months. The rise can be traced to continued static incomes, rising costs of living, and more underemployment; whilst mortgage interest rates have risen thanks to out-of-cycle adjustments by the banks and bigger mortgages thanks to rising home prices.

We think the affordability calculations the banks use need to be reviewed, and the regulators need to do more to get to the bottom of the continuing reclassification of loans between owner occupied and investment – more than $51 billion have been switched, which is around 10 per cent of all investor loans.

Next week we will publish our stress by post code data, and the latest household finance confidence index.

The speculation around whether Sydney home prices are wobbling continues, with the latest CoreLogic numbers flagging a potential fall. But one swallow does not make a summer, and we will need to see more data. Remember there are technical issues behind the CoreLogic index. Auction clearance rates were relatively good, but on lower volumes. We will see what today’s results deliver.

Finally, we expect more discussion on the future shape of capital requirements for the banks, with the Reserve Bank of New Zealand announcing it is undertaking a comprehensive review of the capital adequacy framework applying to locally incorporated registered banks over 2017/18. The aim of the review is to identify the most appropriate framework for setting capital requirements for New Zealand banks, taking into account how the current framework has operated and international developments in bank capital requirements.

In the UK, the Bank of England released details of their approach to setting MREL (a minimum requirement for own funds and eligible liabilities) for UK banks, building societies and the large investment firms. These rules represent one of the last pillars of post-crisis reforms designed to make banks safer and more resilient, and to avoid taxpayer bailouts in future.

Banks are now required to hold several times more loss-absorbing resources than they did before the crisis, while annual stress tests check firms’ resilience to severe but plausible shocks. Banks are now also structured in a way that supports resolution and The Bank of England has the legal powers necessary to manage the failure of a bank, and significant progress has been made to ensure there is coordination between national authorities should a large international bank fail.

We are expecting APRA to release a discussion paper on capital rule tweaks to ensure our banks are unquestionably strong later in the year. This all signals potential higher interest rates for consumers and small business down the track, as more capital is costly.

Trading Up and Trading Down

We finish our household survey update by looking at holders, up-traders and down-traders. Importantly, there are more households seeking to trade down compared with those trading up. You can read the full analysis in the Property Imperative 7, released today.

Holders – More than 780,000 households are holding property, with 81% owner occupied and 21% investment. 418,000 of these properties are owned outright and are mortgage free. Of these households 54% expect house prices to rise in the next year, but under 1% would consider using a mortgage broker because they are by definition not intending to transact in the next year (99%).

Up Traders – Our survey identified about 1,045,000 households who are considering buying a larger property. Most (92%) are owner occupied. Of these households 12% are expecting to transact within the next 12 months, whilst 56% of households expect house prices to rise in this period.

survey-sep-2016-uptradeThe main reasons for these households to transact are as a property investment (42% – up from 40% last year), to obtain more space (29% – down from 33% last year), because of a job move (12%) and for a life-style change (13%). Many of these households will require further finance (74% – up from 70% last year) and a quarter will consider using a mortgage broker (22%), whilst 35% of these households are actively saving to facilitate a transaction. We note that prospective future capital gains rated most strongly, the view of property as an investment continues to drive behaviour. The trend is getting stronger.

Down Traders – More than 1.2 million households are considering selling and buying a smaller property, up by 100,000 from last year. Of these 71% are considering an owner occupied property, and 29% an investment property. Of these 680,000 currently have no mortgage and own the property outright. Around 20% of these households expect house prices to rise over the next year, a consistently low figure compared with other segments, whilst 38% expect to transact within 12 months, 10% will consider using a mortgage broker and 8% will need to borrow more. Households will transact to facilitate increased convenience (31%), to release capital for retirement (33%), because of unemployment (2%) or because of illness or death of a spouse (10%).

survey-sep-2016-down-traderWe see a continued sense among down traders that an investment property is likely to be a factor in their ongoing wealth management strategy, especially given the saving crunch underway at the moment, with deposit rates falling, and the inherent quest for yield.

Property Purchase Expectations Are Still Strong

Today we continue our discussion of the latest Digital Finance Analytics household surveys, which looks in detail at intentions to purchase property in the next 12 months. This includes data up to late July, so is clear of potential election impacts. The analysis uses a large sample size, so is statistically robust. We use a segmentation model to flush out the main differences between household types. This is described in our publication “The Property Imperative” which is available on request. These results will flow into the next edition later in the year.

We start with some cross-segment comparisons. First, we find that households are just a little less confident house prices will rise in the next year, compared with 12 months ago. However, around half of all households still believe price growth will roll on. Property investors are the most optimistic, whilst those seeking to sell-down, the least.

DFA-Survey-Jul-2016---PricesLooking next at whether households expect to transact, we find that investors are mostly likely to make a purchase, but there is a continued rise among those wanting to refinance. 40% of those seeking to refinance expect to do so in the coming year.

DFA-Survey-Jul-2016---TransactTurning to borrower expectations, first time buyers, those trading up, and portfolio investors are most likely to seek additional mortgage funding. In fact, as interest rates have fallen, demand is even stronger.

DFA-Survey-Jul-2016---BorrowThose saving to assist in a purchase are mainly confined to households who are yet to transact, or who are trading up. More than 70 per cent of first time buyers wishing to purchase, continue to save.

DFA-Survey-Jul-2016---SavingWe will look in more detail at the forces which are driving investors in a later post, but this summary chart gives a good flavour of what we found. Tax efficiency is the single most powerful driver, and property capital appreciation is also important. Together these are perceived to give better returns that from deposits (in this low interest rate environment).  Around 15 per cent of investors cited the low finance rates currently available.

DFA-Survey-Jul-2016---All-InvFinally, in this post, we look at which household segments are most likely to use a mortgage broker. Given that half of all new transactions are originated via this route, understanding which customer groups are most likely to reach of advice is important. Those seeking to refinance are most likely to transact via a broker.

DFA-Survey-Jul-2016---Broker Next time we will look at some of the more detailed segment specific analysis. But in summary, whilst property transaction, and lending volumes may be falling, there is still strong demand for property. This will provide ongoing support for prices in the coming months, and also suggests that households will be seeking deals from lenders. There is life in the old dog yet!

Property Investors Are Still In The Game

Today we continue to feature research published in the latest edition of The Property Imperative, The full report is available on request.  We look across the property investment sector, which remains strong despite lower growth in investment lending. We continue to see that tax benefits and the prospects of better gains than deposit accounts or shares drives the market. This despite the fact that some investors have a negative net yield, thanks to low rental growth.

Solo Investors.

About 992,000 households only hold investment property, 2.5% of which are held within superannuation. Households in this segment will often own one or two properties, but do not consider they are building an investment portfolio.

Solo-Feb-2016Around 68% of households expect prices to rise in the next 12 months, 38% of households expect to transact within the next year, 53% will need to borrow more, and 37% will consider the use of a mortgage broker.

Investor-Barriers-Feb-2016There are a number of barriers to investment, which our surveys identified. Many investors had already bought, so were not in the market (34%). More than 26% of potential investors were concerned by possibly adverse change to regulation – negative gearing or capital gains and 9% specifically referred to risks in the May budget. Some (12%) said they felt property prices were now too high.

Portfolio Investors

Households who are portfolio investors maintain a basket of investment properties. There are 191,000 households in this group. The median number of properties held by these households is eight. Most households expect that house prices will rise in the next 12 months (70%), and 64% said they will transact in the next 12 months. Many will borrow more to facilitate the transaction (90%), and 52% will use a mortgage broker. Significantly we now see about 23% of portfolio investors looking to their property investments as the main source of income, it has in effect become their full time job. A significant characteristic is the cross leverage from one property to the next.

AllInvestors-Feb-2016

Super Investment Property

Throughout the survey we noted an interest in investing in residential property via a self-managed superannuation funds (SMSFs). It is feasible to invest if the property meets certain specific criteria.

Overall our survey showed that around 3.75% of households were holding residential property in SMSF, and a further 3.5% were actively considering it.

SuperTransact-Feb-2016Of these, 33% were motivated by the tax efficient nature of the investment, others were attracted by the prospect of appreciating prices (24%), the attractive finance offers available (12%), the potential for leverage (15%) and the prospect of better returns than from bank deposits (12%).

We explored where SMSF Trustees sourced advice to invest in property, 23% used a mortgage broker, 22% online information, 11% a Real Estate Agent, 14% Accountant, and 7% a Financial Planner. Financial Planners are significantly out of favour in the light of recent bank disclosures publicity on poor advice.

TrusteeAdvice-Feb-2016The proportion of SMSF in property was on average 34%.

SMSFSharePty-Feb-2016According to the fund level performance from APRA to December 2015, and DFA’s own research, Superannuation has become big business, with total assets now worth over $2 trillion (compare this with the $5.5 trillion in residential property in Australia), an increase of 6.1 % from last year.

APRA reports that Self-Managed Superannuation funds held assets were $594.6 billion at December 2015, a rise from $578.9 billion in Sept 2015.

Refinance, The Way to Go

We just released the latest edition of “The Property Imperative”, which is available free on request. This provides access to our latest household survey results. One key segment is the refinance sector and we feature our survey analysis on this segment today.  This segment has become the new battleground for mortgage sector growth. Indeed there are deals below 4% currently to be had, including for 3 years or more fixed. Remarkably low rates.

There are around 695,000 households considering a refinance of an existing loan of which 78% relate to an owner occupied property, and 22% to an investment property. To assist in the refinance, 76% of households will consider using a mortgage broker.

Refinance-Feb-2016Households are looking to refinance for a number of reasons, including reducing monthly repayment (39%), to lock in a fixed rate (15%), because of a loan rollover (13%), in reaction to poor lender service (10%), for a better rate (10%) or to facilitate a capital withdrawal (11%). In the next 12 months, 34% of these households are likely to transact (a rise from 29% last time), whilst 47% expect house prices to rise in the next 12 months.

Refinance-Loan-Size-Feb-2016   The growth in refinancing can be expected to continue as the focus turns from investment lending to owner occupied new and refinance loans. There are a number of discounted offers for refinancing currently available. We note that a higher proportion are refinancing to a fixed rate.

Refinance-Drivers-Feb-2016The most likely loan size to refinance is $250-500k. The refinance drivers vary across the loan size bands. The largest loans are more associated with releasing cash, whereas smaller loans are more associated with reducing monthly payments, or resetting an existing term loan. We also note brokers are more associated with the refinance of larger loans.

Refinance-Type-Feb-2016The larger the loan, the more likely it is that the refinance will be to a fixed rate loan and to an interest only loan.

New Edition of “The Property Imperative” Just Released

The updated edition of “The Property Imperative”, our flagship report on the residential housing sector, which includes survey data to March 2016 is now available free on request.

From the introduction:

The Property Imperative is published twice each year, drawing data from our ongoing consumer surveys, research and blog. This edition dates from March 2016 and offers our latest perspectives on the ever-changing residential property sector.

As usual, we begin by describing the current state of the market by looking at the activities of different household groups using our recent primary research and other available data.

In this edition, we also look at rental yields, household interest rate sensitivity and the role of mortgage brokers, plus data on negative gearing.

Residential property remains in the cross-hairs of many players who wish to influence the economic, fiscal and social outcomes of Australia. In policy terms, debates around negative gearing and capital gains tax breaks for investment properties have hotted up.

By way of context, the Australian residential property market of 9.53 million dwellings is currently valued at over $5.86 trillion and includes houses, semi-detached dwellings, townhouses, terrace houses, flats, units and apartments. In the past 10 years the total value has more than doubled. It is one of the most significant elements driving the economy, and as a result it is influenced by state and federal policy makers, the Reserve Bank (RBA), banking competition and regulation and other factors. Indeed, the RBA is “banking” on property as a critical element in the current economic transition.

According to the RBA, as at January 2016, total housing loans were a record $1.53 trillion. There are more than 5.4 million housing loans outstanding with an average balance of about $249,000. Approximately 64% of total loan stock is for owner occupied housing, while 36% is for investment purposes. In recent months there has been a restatement of the mix between owner occupied and investment loans, and as a result the true blend is hard to decipher.

The RBA continues to highlight their concerns about potential excesses in the housing market. In addition, Australian Prudential Regulation Authority (APRA) has been tightening regulation of the banks, in terms of supervision of lending standards, the imposition of speed limits on investment lending and has raised capital requirements for some bank. The latest RBA minutes indicates their view is these regulatory changes are slowing investment lending somewhat, though we observe that demand remains, and in absolute terms, borrowing interest rates are low.

As a result, momentum in the market has changed, with growth in investment lending relatively static, but counterpointed by a massive focus on owner occupied refinancing and the rise of differential pricing. In addition, 37% of new loans issued were interest-only loans, a drop from 46% last year as the regulators have been bearing down on the banks’ lending standards.

The story of residential property is far from over!

Request a copy of the report here. Please note this is an archived edition now, so if you are after this version – volume 6 please specify so in the comment section of the request form. Otherwise you will receive the latest edition.