Bank tightening sees investor loans fall a sharp 6 percent in February: ABS data

In the first sign of the impact of tighter lending practices by banks, investor loans showed a sharp 6 percent drop in value in February, along with a fall in home loan demand, according to a senior economist with a leading bank. 

New data from the Australian Bureau of Statistics show that not only the number of new loans ease modestly in the February, but the value of all loans also fell, said Savanth Sebastian, senior economist at CommSec.

The Real Estate Institute of Australia (REIA) also confirmed the view, saying the latest ABS data shows finance approvals for investor housing is moderating.

“The value of investment housing commitments increased by a modest 0.7 per cent in February in trend terms and decreased by 5.9 per cent in seasonally adjusted terms. This is down from its 2015 peak”, REIA president Malcolm Gunning said.

“It is still early days but data over the next couple of months will be more telling,” added Sebastian on the fall in investor borrowings.  

All the major banks have put brakes on investor loans or refinancing of investment property mortgages, in addition to higher interest rates for investors, in line with the prudential regulator APRA’s guidelines to cool a heated property market. 

“The average loan size recorded a fall of almost $10,000 in February. In fact over the past two months the average loan balance has fallen by over $22,000 or 6.2 per cent,” said Sebastian.  

“The recent shift by the banking sector in regards to loan serviceability may have played a part. It should be noted that the average home loan is also influenced by home prices, composition of borrowers and the geographic location of home purchases.”

He said the Reserve Bank was correct in its view that conditions in the housing market are very mixed. There is a healthy pipeline of work, with owner occupiers likely to dominate home building and buying. The value of loans to build new homes stood at a just under $2.9 billion – easing modestly from the record high of $3.3 billion in March 2016. 

The latest Housing Finance data found 54,816 home loans were written throughout the month of February, down from 55,099 written the month prior.

“After three consecutive months of growth in home loan approval numbers, we saw a decrease in February,” said Mortgage Choice chief executive John Flavell.

But he added that January and December are “notoriously strong months” in terms of home loan demand and there is generally a drop off in home loan approvals come February.

In February 2017, $32.9 billion worth of home loans were approved, down 2.7% on the previous month, but up 0.3% on February 2016.

Of the $32.9 billion worth of home loans approved over the month of February, $19.9 billion were for owner-occupied loans, while $12.9 billion were for investment purposes.

Looking ahead, Flavell said recent investment policy and pricing changes by many of Australia’s lenders could cause this type of home loan demand to tumble. 

“Over the coming months, we expect to see lending for investment housing to decrease because a lot of Australia’s lenders are making changes in this space,” he said.

“In recent weeks, we have seen a number of lenders tweak their investment pricing, with some increasing their interest rates by as much as 39 basis points across some of the investment products."

In addition, some lenders have removed themselves from the investment lending space altogether, whilst others have tweaked their policy and made it clear that they will only lend to certain types of investor customers, he added.

"All of these changes will ultimately have an impact on the level of investment activity and investment loan approvals,” said Flavell.