Housing credit growth slows amid market downturn

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Demand for housing credit continued to slow down last April amid the market’s recent downturn, according to latest data from the Reserve Bank of Australia (RBA).

Housing credit grew by just 0.4% in April. When rounded, this marked the slowest monthly expansion since July 2013, according to CoreLogic. Owner occupier credit increased by 0.6% – the slowest monthly rate since December 2016, and investor credit expanded by just 0.1% – its slowest pace since March 2016.

“In the recent housing market downturns, investor credit growth has typically slowed much more than owner occupier. 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,” said CoreLogic research analyst Cameron Kusher.

Meanwhile, owner occupier credit expanded by 8.0% over the past year, its slowest annual expansion since January 2018, and investor credit grew by just 2.3% the slowest rate of annual growth since September 2016.

Kusher believes a range of different factors are driving the slowdown. These include the 10% speed limit imposed by the Australia Prudential Regulation Authority (APRA) on investor credit in December 2014. The analyst also cited loan serviceability – now being calculated across an interest rate of at least 7%, which has made accessing credit for some more difficult.

Kusher also said lenders are now typically charging premiums of 60 basis points on interest rates for investors compared to owner occupiers with premiums typically in excess of 100 basis points for investors with interest-only loans.

“Although the 10% speed limit is set to be lifted from July 1st, the likelihood of a rebound in housing credit remains low. The 30% cap on interest-only lending has a much more broad based dampening effect on investor activity,” Kusher said.

Looking ahead, CoreLogic expects that the share of total credit for housing will continue to decline over the coming months as values continue to fall amid the housing market downturn.

 

Related stories:
Housing affordability improves
Reserve Bank holds rates - again

 

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