New data from the ABS and APRA have provided updated insights into the housing lending space, which is highly correlated with trends in home prices and sales volumes. Lending for the purchase of property hit record highs through April 2021. However, the concentration of mortgages regarded as ‘higher risk’ remained around average levels through the start of the year. As new lending continues to rise, ABS housing lending indicators have pointed to a continued shift in the profile of the buyer, with first home buyer (FHB) lending falling for a third straight month against a rise in other types of secured finance.
Over April 2021, approximately $31 billion was lent for the purchase of property in Australia. This is up from $30 billion in the previous month, and marks a record high for the series.
The charts below show the change in the value of lending to different property buyer groups in the three months to April, as well as the share of total finance that each buyer group accounts for.
The total value of finance increased 14.9% in the three months to April 2021, compared with the previous 3 month period.While the investor segment saw the fastest increase in the value of finance, owner occupier buyers who were not first home buyers (such as up-sizers, movers and down-sizers) maintained the most dominant share of housing finance for the purchase of property by value. Owner occupier non-FHBs accounted for 52.5% of housing finance, compared to a decade average of 49.0%. FHB finance comprised 21.5% of total borrowings for the purchase of property over April, marking the 5th month of consecutive decline in FHB share of the value of borrowing. Despite the declining FHB share, it remains well above the decade average of 15.7%.
It is also worth noting that while FHB finance is higher on a quarterly basis, the combined value of lending for FHBs has started to decline in month-on-month terms. This included a 1.9% fall over the month of April, while non-FHB finance shot up 7.0% in the same period.
Compared with FHBs, owner occupiers (and some investors) who already own a home may be better equipped to participate in a dwelling market when values are rising, as existing housing assets may have seen an uplift in value from the broad-based housing boom. The share of investor finance secured for the purchase of property was 25.9%, and although rising, is well below the 35.3% decade average.
The recent change in the trajectory of first home buyer and investor mortgage share reflects greater challenges for first home buyers. Affordability is becoming strained as national dwelling values have risen 10.1% in the year-to-date alone.
The decline in FHB activity also reflects a tapering in government assistance. The HomeBuilder scheme, which was popular for its compatibility with first home owner grants and stamp duty discounts, ended in March of 2021. This has likely contributed to the decline in FHB demand.
Investor activity has been most concentrated in NSW. As of April, 30.6% of the value of housing finance for the purchase of property was secured by investors across NSW. Queensland has also seen a notable lift in investor concentration, with 25.7% of finance secured by investors, which is the highest level since October 2018.
Despite new record highs in housing finance, recently released data from APRA on housing finance in the March quarter suggests that there has not been a material increase in risk across the housing lending space.
The portion of new loans originated with a loan-to-valuation ratio of greater than or equal to 90% fell, from 11.3% in the December 2020 quarter, to 10.4% over the three months to March. The portion of lending on interest only terms ticked up 10 basis points in the quarter to 19.4% in March 2021, but this remains well below the 46% peak in 2015.
Loans with high debt-to-income and loan-to-income ratios did increase more substantially in the quarter. However, part of the lift may be attributable to higher income borrowers being active in the market, with higher income households generally accounting for a large share of total household debt. This is also reflected in the faster capital growth rates currently observed at the higher end of the housing market, where high-end property buyers may be more active.
The increase in indicators for loans regarded as higher risk remains relatively low. This suggests that any short-term, formal policy changes to mortgage lending is unlikely. In the latest Quarterly Economic Review from CoreLogic, we noted there are also ‘softer’ signs of strong lending standards being enforced, with industry addresses and statements signalling the importance of monitoring and maintaining prudent lending standards. With property prices rising rapidly, any changes to credit availability would likely be communicated and deployed carefully.