Investor loan growth makes APRA’s job tricker

Weaker home loan growth for every category of borrower except investors is increasing the pressure on banking regulator APRA – as rate-rise expectations increase – to hold off further intervention to curb runaway property prices.

Lockdowns in Victoria and worsening affordability curbed borrowing activity of owner occupiers and first home buyers even as investor loans grew faster in September, Australian Bureau of Statistics figures showed on Monday.

Separate CoreLogic figures showed dwelling price growth slowed to 1.49 per cent in October, with Sydney and Melbourne increases at less than half of the pace they showed in March.

Rising inflation has prompted economists to bring forward expectations of rate rises, which would weaken the housing market – and means less chance of further regulator-driven lending curbs.

“We expect national dwelling prices to rise by 7 per cent in 2022 on the condition that there are no further policy changes from APRA with regards to home lending,” CBA economist Belinda Allen said.

“Additional changes cannot be ruled out, but given the changing interest rate dynamics and signs of slowing momentum in prices and lending, there are no guarantees more changes will be implemented.”

Total new mortgage commitments slipped 1.4 per cent from August – in line with expectations – to a seasonally adjusted $30.3 billion, as total owner-occupier loans fell 2.7 per cent and first home buyer lending shed 1.9 per cent, for a fourth month of decline.

New investor lending, by contrast, rose 1.4 per cent to $9.6 billion in September, marking the 11th straight month of expansion.

External refinancing of loans fell for a second month from July’s record $11.4 billion, down 9.6 per cent in September to $10.2 billion.

It certainly makes the task for banking regulator APRA – which last month raised bank serviceability buffers – trickier.

Independent economist Saul Eslake said the regulator was slow to act and the 50-basis-point increase in the buffer was the wrong measure as it would disproportionately affect first home buyers.

“That has its greater impact on would-be first home buyers who are more likely to be borrowing at the margin of what they can afford than trader-uppers or investors,” Mr Eslake said.

Investors, more likely to have high debt-to-income ratio loans – as servicing costs were tax-deductible – should have been targeted, Mr Eslake said.

“The right lever to have pulled would have been imposing [a] limit on the proportion of loans that can be made on loans with DTI ratios over six,” he said.

SQM Research managing director Louis Christopher said APRA would be more cautious about singling out investors after the last round of tightening, which included curbs on interest-only loans, triggered a “pretty sizeable” contraction.

“The investor demographic is an easy one to target,” Mr Christopher said. “It would be more politically savvy to go for the investor market as opposed to whacking first home buyers.”

A more targeted measure would be one such as the decision by banks last time to exclude from income calculations the rent paid by tenants on a property an investor wanted to buy, he said.

“That would be more targeted to investors over and above what’s going on now,” Mr Christopher said.

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