Earlier this week the Australian Prudential Regulation Authority (APRA) released its quarterly property exposures data for authorised deposit-taking institutions (ADIs). The data covered the March 2018 quarter and it highlighted the ongoing evolution of APRA’s macroprudential measures on the housing market.
Over the March 2018 quarter there was $86.752 billion in new mortgage approvals to ADIs. This figure was -13.5% lower over the quarter and -2.8% lower year-on-year. The March 2018 quarter saw the lowest value of new mortgage approvals since March 2016. Over the quarter, the value of lending to owner occupiers an investors fell. Year-on-year the value of lending to owner occupiers was 3.9% higher while lending to investors was down -15.3%.
Over the March 2018 quarter, there was $13.626 billion worth of lending for interest-only purposes which equated to 15.7% of new lending. In value terms the $13.626 billion was the lowest quarterly value any time over the past decade. The 15.7% share of total lending for interest-only purposes was slightly higher than the previous quarter (15.2%) but is well down on previous levels. APRA has put in place a cap whereby only 30% of new lending can be for interest-only mortgages. For each of the past three quarters interest-only lending has been well below this cap highlighting that higher mortgage rates for this product have substantially crimped demand.
The chart above highlights the value of lending for non-standard loans and loans outside of serviceability. Over the past quarter each of these loan types have seen a fall in the value of lending. Year-on-year there has been a fall in low documentation and other non-standard lending while there has been a substantial increase in loans approves outside of serviceability (+193.7%). Although loans approved outside of serviceability have increase year-on-year, they remain a small part of overall lending (5.3%) as do low documentation (0.3%) and other non-standard loans (0.1%).
Tighter lending policies have also led to an ongoing fall in the share of lending on high loan to value ratios (LVRs). Over the March 2018 quarter, there was $17.064 billion worth of new lending with an LVR greater than 80% which accounted for 19.7% of total lending over the quarter. The $17.064 billion was the lowest quarterly value of lending for an LVR above 80% since March 2013 and the 19.7% share of total was an historic low.
The data released from APRA highlights how the lending policies currently in place are resulting in fewer investment and interest-only borrowers, general reductions in non-standard mortgage types and a reduction on higher LVR lending. A potential area for concern is that the value and share of loans approved outside of serviceability is somewhat elevated compared to historic levels. With macropruidential policies remaining in place and the potential for additional policies, such as limits on debt to income potentially to be implemented, it is pretty clear that taking out riskier mortgages is becoming less commonplace. This should help to somewhat future-proof the housing market in the event of future shocks. Of course dwelling values are now falling in the two largest markets (Sydney and Melbourne) and the real litmus test for the prudential oversight will be whether or not loan quality is maintained as values fall and whether or not mortgage arrears climb.