Housing-related lending up in July: Gareth Aird
GUEST OBSERVER
As always, a plethora of information on lending for housing-related purposes. The headline number, which is the value of total lending over July, rose by 1.5%. The detail reveals that loans to owner-occupiers (O-Os) rose by 2.2% and loans to investors were 0.5% higher.
O-Os: There has been pretty reasonable growth in lending to O-Os over the past year. By value lending is up 14.0% through the year and by number it’s up 3.9%. The difference between the two largely reflects the strong lift in dwelling prices which means that the average loan size has risen quite 5 solidly. Today’s data shows that the average new loan size for an O-O was 365k in July – up 9.8% through the year. Clearly, interest rate cuts have helped contribute to a lift in average loan size because the capacity to borrow rises when borrowing costs fall.
Investors: For much of the past two years, lending to investors has been the dominant driver of housing-related lending growth.
But in the last few months lending to investors has cooled a little. It’s still early days, but there are some tentative signs that some of the measures introduced by a number of banks to slow investor-related lending growth are having the desired impact. A gradual decline in rental yields is also playing its part in moderating the rate of lending growth to investors. We expect this trend to continue over coming months.
Construction: Total lending for dwelling-related construction fell slightly over July to leave annual growth at 12.9%. The solid growth in construction lending mirrors the lift in building approvals and residential construction surge currently underway. This story still has a way to run and the latest building approvals data shows that the pipeline of residential construction to come is deep. Dwelling construction generates jobs and the multiplier effect benefits other sectors of the economy. It will also help to alleviate some of the supply/demand imbalances in the property market, particularly in Sydney where dwelling prices have been running riot.
States: The data on O-Os by State in July shows that annual growth in the number of loans is strongest in NSW (+11.0%), followed by QLD (+4.3%) and Vic (+3.6%). Unsurprisingly, the capital cities of these States have had the strongest house price growth over the past year. Other State results were Tas (+2.0%), SA (+0.4%) and WA (-6.8%). An update on lending to investors by State will be in Friday’s Lending Finance publication.
First home buyers: The number of loans to first home buyers fell by 1.0% in July to be down 1.1% through the year. First home buyers represent just 15.4% of all dwellings financed – close to record lows.
Gareth Aird is economist at Commonwealth Bank and can be contacted here.