The impact of recent changes to investment lending practices is again a topic of debate following the release of lending statistics for the month of July.
According to the July Housing Finance Data from the Australian Bureau of Statistics, the value of overall home lending rose 0.5% in the month. Within that, owner occupied lending rose 0.8%, refinancing rose 0.7% and investment lending increased by 0.1%. In seasonally adjusted terms, the total value of home lending, excluding alterations and additions, rose 1.5%.
While the number of investment purchases by individuals fell 0.5%, the number investment purchases for construction rose 4.3% and investment by other entities (including SMSFs) rose 2%.
The value of lending to investors constructing new homes jumped by 11.7% in the month, reaching a new all-time high.
Mortgage Choice chief executive officer John Flavell says the continued rise in home loan demand was interesting, especially given the current market conditions.
“Over the last few months, Australia’s lenders have made some sweeping changes to their policy and pricing in a bid to reduce their level of investment lending,” he said.
“As such, you would expect these changes to have some impact on the level of investment demand. But, according to today’s data at least, the changes seem to have had little to no impact on the level of demand.
“Of course it is still early days, and considering most of the changes were made in June and July, we are unlikely to see the true impact of these changes for some months yet.”
AMP Capital chief economist Shane Oliver believes that the changes are having an effect and that the peak level of investor lending has already past.
“The new loan flows could continue to slow down for some time, and I expect that’s what we will probably see in the months ahead – not precipitous falls, but I suspect that we’ve seen the top in investor lending back in April,” Dr Oliver told Fairfax media outlets.
CommSec ecconomist Savanth Sebastian also told Fairfax the full impact of investor lending policy changes will soon be seen.
"The tighter bank lending standards will take some time to filter through," Sebastian said.
"By the end of this year, you'll start to see a much more heavy impact in terms of a pullback in investor finance."
Looking at the overall stock of loans, investment loans now make up a record 38.9% of the total portfolio. Martin North, principal of Digital Finance Analytics says this is partly due to the recent restatement of loan types by some banks, however, it is still too much leverage.
“We think this is too-higher share of housing lending (it is more risky in a down-turn) and the banks 60% total loan portfolio in housing is also too high, sucking finance from business sectors which might contribute to real economic growth.”
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