As the fallout of shifting fortunes for Australia’s major property markets continues, news coming out of the financial services sector presents a mixed bag this past month.
Regulators have faced tough questions over whether they put the brakes on too hard too soon, new alliances are opening further doors of credit to investment based borrowers, banks suddenly seem more generous but less generous all at once, and mortgage lending is forecast to flounder slightly across the coming year. Here’s a bit of a wrap up…
Growth in mortgage lending predicted to tighten
Fitch’s latest global housing forecast suggests mortgage lending is likely to slow to 4% across 2018, with cooling investor demand, rising transaction costs and tougher capital requirements and serviceability parameters all limiting access to new mortgages.
This in turn, is expected to further moderate housing price growth across key markets like Melbourne and Sydney over the next 12 months.
Potentially throwing a spanner in the works however, are new alliances forming between non-bank lenders and global private equity groups that are snapping them up to jump into the lucrative local investment mortgage scene, since APRA’s intervention left an obvious gap in more flexible financing options.
Finance approvals slip and slide
In related news, housing finance approvals have experienced a mixed bag for the beginning of the year, with the number of owner occupier approvals dropping by 1.1% in January, but investor loans firming up by 1.1%.
Meanwhile, the share of new investor loans fell to 30.5%, from around 40% for the same time last year, while interest only loans accounted for just 15.2% of all new loans written, versus again, around 40% a year ago.
Interestingly, the share of high LVR loans with a 90% plus LVR edged up from 6.9% to 7.2%, while the share of loans with an LVR of 80 to 90% declined from 14.1% to 13.7%.
Regulators – take cover!
It seems banking sector regulators just can’t win. Damned if you do…more damned of you don’t. Then damned because you did some more.
APRA Chairman Wayne Byers was recently forced to defend the regulator’s actions taken in 2015 and last year, in a bid to reduce the constant red flags being raised around Australia’s overheated property markets.
During questioning from the House of Representatives’ Economic’s Committee, Byers said that to suggest APRA’s limitations on investor based and interest only loans forced up interest rates and thereby the cost of living for every family with a mortgage, was too simplistic. Which is essentially what the Committee suggested.
And besides, they achieved what everyone was baying at them to do; helping to reduce building financial stability risks that arose due to fierce competition at the lower end of the housing market.
Indeed, the Reserve Bank earlier in March reported that these tighter credit standards had “been helpful in containing the build-up of risk on household balance sheets,” and that, “housing credit growth had eased, particularly for investors.”
Byers pointed to this as evidence that the regulator had done the right thing in hindsight. He added that when APRA eventually loosens its macro prudential reins, the 10 per cent limit on annual investor credit growth would likely be the first measure to be unwound. But the 30 per cent Interest Only lending cap would stick around for some time to come.
When will rates rise?
Finally, the question we would all love to know the answer to is being pondered yet again. Households appear limited in their flexibility to service higher mortgage repayments in light of sluggish wage growth and rising cost of living, and for this reason most experts concur a rise in 2018 is unlikely.
A smaller clutch of industry boffins are banking on a possible rate rise mid-year, alongside unemployment figures predicted to drop to as low as 5% at that time and a shift in inflationary fortunes just on the horizon. Those forecasting these changes say this would be sufficient ammunition for the Reserve to raise the official cash rate.