APRA published their quarterly ADI property statistics today to September 2014. ADIs’ total domestic housing loans were $1.3 trillion, an increase of $103.4 billion (9.0 per cent) over the year. There were 5.2 million housing loans outstanding with an average balance of $239,000. The proportion of investment loans moved higher again to 34% of all loans on book. DFA survey data shows a correlation between interest only and investment loans, (thanks to the benefits of negative equity), but APRA does not provide any linked data on this.
Looking at total loan stock, we see a continued rise in interest only mortgages, and loans with offset facilities. Reverse mortgages, low documentation loans and other non-standard mortgages are relatively controlled by comparison.
Turning to the flow data (loans written each month), ADIs with greater than $1 billion of residential term loans approved $85.4 billion of new loans, an increase of $9.1 billion (11.9 per cent) over the year. Of these new loan approvals, $53.5 billion (62.6 per cent) were owner-occupied loans and $31.9 billion (37.4 per cent) were investment loans. Thus we see that overall monthly totals continue to rise, and investment loans are growing faster than owner occupied loans. The 37.4% of investment loans September is understated because the owner-occupied lending data includes refinances, which should be removed from the analysis, to give a true picture of new lending.
Looking in more detail, we see the value of interest only loans rising in recent months, and also a small rise in the number of loans approved outside serviceability. Low documentation loans remain controlled.
Looking at lending by LVR bands we see about 40% of loans being written are above 80% loan to value, and of these around 10% are above 90%. No data is provided on the proportion of loans covered by lender mortgage insurance. This should be.
Brokers are having a field day at the moment, with commissions being increased, and values written rising. The APRA data shows 43.2% of all loans by value were originated via third party channels.
So, the RBA’s plan that the property sector should take up some of the slack left by the evaporating mining sector is still playing out. However, lending for investment property, and interest only lending have higher risks attached, and we think changes to capital rules are still likely to emerge to try and address some of the implicit risks.
Finally, ADIs’ commercial property exposures were $225.5 billion, an increase of $13.5 billion (6.4 per cent) over the year. Commercial property exposures within Australia were $187.4 billion, equivalent to 83.1 per cent of all commercial property exposures.
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