All eyes on APRA as investor lending surges 20%

The latest findings from the ABS indicate that lending to investors grew by 21 per cent in the year ending November 2016.

According to ANZ’s Quick Reaction regarding the results, this is the fastest growth since the implementation of APRA’s macroprudential regulations in 2015.

Speaking to Mortgage Business, HSBC chief economist Paul Bloxham remarked that the findings suggest there has been a “revival” of investor interest in the Australian housing market.

“Most of that we think is being driven by activity in Sydney and Melbourne where house price growth has been very strong recently,” Mr Bloxham elaborated.

ANZ economist Daniel Gradwell echoed these views, highlighting that sentiment in the housing market has recovered, particularly towards the final few months of 2016.

BIS Shrapnel associate director Kim Hawtrey added that it is a combination of interest rate cuts in 2016 and more positive news about renewed house price growth that have brought investors back into the market.

ANZ’s Mr Gradwell pointed out that another trend that the ABS data reveals is that most of the investor demand for housing is in established housing rather than new properties.

“We’ve seen a real turnaround in the demand for construction of new properties. That’s really fallen over the last couple of months, and that’s in line with building approval numbers, which have started to decrease quite sharply,” he said.

Could further lending curbs be on the way?

HSBC’s Mr Bloxham noted that the rise in investor lending is likely to be something that prudential authorities will be watching “very carefully”.

“We’ve had tight prudential settings already… this sort of indicator would suggest that those tight prudential settings will continue,” he said.

BIS Shrapnel’s Mr Hawtrey said that it is possible that as 2017 progresses APRA may take another look at investor lending.

“I think they’re hesitant to do that if they can avoid it, but if they feel that lending to investors is getting back up to a point where they’re uncomfortable then they may consider further restrictions.”

Meanwhile, ANZ’s Mr Gradwell said that further lending curbs are unlikely at this stage, as the housing market is different to 2015 when things were “really heating up”.

“At the moment, we're probably at the end of the easing cycle and rates are probably going to increase over the longer term which is quite different to where we were a couple of years ago, so I think that this different interest rate environment should keep a lid on investor lending to an extent,” he concluded. 

Looking forward

HSBC’s Mr Bloxham said that it is likely that there will be “forces at work” that will slow price growth in 2017.

He explained: “Firstly, we think those prudential settings are going to remain fairly tight. Secondly, we don't think interest rates are going to fall any further. We think that there's going to be some pull back in foreign demand, partly because the Chinese currency has been coming down recently so it's making Australian housing more expensive for Chinese buyers.

“And there's also supply that's coming to market, particularly in the apartment space. We've had quite a large construction boom for apartments across the major cities, and that we think will help to meet demand and contain price growth in the apartment markets.”

As for investor lending, BIS Shrapnel’s Mr Hawtrey highlighted that the number of investor loans is not too far off its peak of 18 months ago.

“With low interest rates and with a fair bit of good news about and still some house price growth, it's not hard to see the value of investor loans once again getting up to the peak that it had before,” he concluded.

[Related: Analysis: How lending curbs reshaped the industry in 2016]