Investor loans continue to send a shiver

The proportion of housing loans issued to investors has grown again, with investors receiving 49.6% of the value of all new loans in November 2016. Although it’s a subject of debate, the data suggests there is little evidence that prudential controls aimed at restraining investors and the risks of a ‘debt bubble’ are working. As 2017 begins, its investors, not apartment developers, who are sending a shiver down the national economic spine.

In November 2016, loans to investors were valued at AUD13.268 billion, accounting for 49.6% of the total value of loans, which at AUD26.757 billion were at their second highest ever level.


To go straight to the dashboard and take a closer look at the data, click here.

The concern for regulators is not the total value of loans, it’s the extent to which it is fuelled by loans to investors, and the impact that has on the housing market.

As David Uren wrote in The Australian in mid-January, the monthly value of loans to investors rose $2.5 billion from April to November 2016. Meanwhile, loans to owner-occupiers have languished, falling 5.4% in November 2016, compared with November 2015.

Put in its starkest form, for established properties, loans to investors outstripped loans to owner-occupiers in November.

These latest figures led immediately to calls for investor friendly tax incentives (negative gearing in particular) to be changed and increased the likelihood of further regulatory efforts being made to rein in the banks.

Uren reports that the Reserve Bank of Australia is concerned about levels of household debt, especially among the investing households. The big issue here is the level of debt that investors may be taking on and their capacity to handle any adverse market conditions if that was to eventuate.

For their part, anxious to avoid new controls applied by the Australian Prudential Regulatory Authority and the RBA, the major banks have started to declare investor borrowers from some suburbs to be higher risk than others.

In 2015, APRA’s instruction to restrict investor loan growth to 10% per annum appeared to be working, with investor loans falling sharply through to April 2016. This in part allowed the RBA to cut interest rates, with less concern doing so would not fuel higher house prices from increased investor activity.

That does not appear to have transpired, with banks returning to what appears to be a ‘growth bias’, at least when it comes to investor loans.

If there are big losers in this ongoing round of the housing credit wars, it is inevitably the weakest market participants – first home buyers. Although for the year-ended November 2016, they accounted for 13.8% of loans, up from 12.9%, this remains below the long-term average of 17% to 18% of the market.