Regulatory measures and a subdued housing market are continuing to dampen credit growth, with no sign of a recovery on the horizon.
CoreLogic’s latest Property Pulse report has revealed that demand for housing credit growth increased by 0.4 of a percentage point in April, the slowest rise in five years.
The overall slowdown in growth was driven by a 0.6 of a percentage point growth in owner-occupied lending, the slowest since December 2016. Lending to property investors grew by just 0.1 of a percentage point, the slowest recorded growth since March 2016.
“In the recent housing market downturns, investor credit growth has typically slowed much more than owner-occupier,” CoreLogic’s research analyst, Cameron Kusher, said.
“However, given investors have been a substantial driver of housing demand over recent years, it is reasonable to expect that investor credit growth will slow further from here as values in the most investor-centric markets (Sydney and Melbourne) continue to fall.”
Over the past 12 months, housing credit rose by 6.0 per cent, the slowest annual increase since March 2014.
Owner-occupied credit growth rose by 8.0 per cent over the past year, the slowest rate of growth since January’s year-on-year figure, while investor credit growth increased by 2.3 per cent annually, the slowest annual growth since September 2016.
Mr Kusher added that the annual slowdown in investor credit growth is “entrenched”, but he claimed that owner-occupied credit growth, while still slow, is “holding firmer”.
Moreover, as of April 2018, there was $2.827 trillion in credit outstanding to Australian authorised deposit-taking institutions (ADIs), $1.755 trillion (62.1 per cent) of which was to residential housing, with a further 32.5 per cent to businesses and 5.4 per cent for other forms of credit.
Mr Kusher observed that the share of housing credit as a proportion of total outstanding credit has declined, as seen in previous housing market downturns, despite trending higher for many years.
CoreLogic has reported that it expects the share of housing credit to continue falling over the coming months as dwelling values continue to drop.
Mr Kusher claimed that the decline in credit growth has been driven by macro-prudential curbs imposed on investor and interest-only lending by the Australian Prudential Regulation Authority (APRA) as well as tighter serviceability requirements.
The research analyst noted that APRA’s measures have prompted lenders to impose interest rate premiums of up to 60 basis points on investor loans and 100 basis points (1 per cent) on interest-only loans.
In late April, APRA announced that it would lift its 10 per cent cap on investor lending; however, Mr Kusher claimed that it would not be enough to stimulate credit growth.
“Although the 10 per cent speed limit is set to be lifted from 1 July, the likelihood of a rebound in housing credit remain low,” the research analyst said.
Mr Kusher also noted that he expects further tightening in credit conditions.
“Add to this the fact that APRA is now focusing more on minimising debt-to-income ratios higher than six and maintaining a focus on keeping low-deposit lending to a minimum, and banks are stepping up their scrutiny on borrower expenses and incomes,” Mr Kusher said.
“The net effect is likely to be further tightness in housing credit, which will continue to constrict housing market activity and reduce prospects for price appreciation.”