Investors switch $32 billion worth of home loans in five months

In its Financial Aggregates for November, released on 31 December, the RBA noted that a significant number of borrowers have changed the purpose of their existing loan.

“The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $32.5 billion over the period of July 2015 to November 2015 of which $1.9 billion occurred in November,” it said.

“These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes.”

This year APRA, the RBA and the Australian Bureau of Statistics will undertake a thorough review of the home loan data collected from Australian banks following the emergence of serious data issues that 'concerned' the central bank.

Speaking at the Finsia Regulators Panel in November, RBA deputy governor Philip Lowe said that recent problems with the data relating to banks' owner-occupier and investor housing loans have complicated the central bank’s understanding of what is going on in the housing market.

“These data problems have emerged as lenders have taken a closer look at their housing loans following increased supervisory scrutiny,” Mr Lowe said. “As lenders have looked more closely, what they have found has surprised and, to some extent, concerned us.”

Mr Lowe said the issue of inaccurate mortgage data was discussed at the most recent meeting of the Council of Financial Regulators, with council members considering what steps could be taken to improve the quality of data.

“Among other things, it has been decided that APRA, the RBA and the Australian Bureau of Statistics will, next year, undertake a thorough review of the data collected from authorised deposit-taking institutions regarding their domestic books,” he said.

Mr Lowe pointed out two issues that had emerged since the regulatory crackdown on investor lending began in mid-2015.

“The first is that over the past six months there have been very large upward revisions to the value of investor loans outstanding, with offsetting downward revisions to owner-occupier loans,” he said, noting that material revisions have been made by more than 10 institutions, including two of the largest lenders.

“The cumulative effect of the upward revisions has been to increase the stock of investor credit outstanding by around $50 billion, or 10 per cent. According to these new data, investor loans now account for 40 per cent of total housing loans outstanding, not the 35 per cent reported earlier in the year.”

The RBA’s shock over the $50 billion home loan error led Domain Group senior economist Andrew Wilson to question APRA’s lending curbs.

Speaking to Mortgage Business, Mr Wilson said the regulatory crackdown on investor lending needs to be questioned if the integrity of the bank data that it was based on is now being scrutinised.

“I think there is an issue here in terms of the capacity for investors to switch to owner-occupier and back again, but also the nature of data collection,” Mr Wilson said.

“The RBA recently found $50 billion in unaccounted for investor lending, which really does create a lot of head scratching.

“If we have to question the integrity of the data, really, doesn’t that question the whole nature of the policy as it has been introduced?

“We are not just looking at the outcomes of the macroprudential policy but the nature of the recording of the particular data.

“It is just a can of worms that has been opened. It’s not just questioning the need for a model in the first place, but it is now questioning the foundation of the model itself, and whether the outcomes are measurable in terms of rigor. Particularly given that the sharp fall in investors was matched with a sharp rise in owner-occupied finance,” he said. “It just looked a little skewed.”

[Related: APRA has 'opened a can of worms', says economist]