The latest data on property exposures of Australia’s authorised deposit-taking institutions (ADI) show that the perceived riskier areas of new mortgage lending continue to slow.  This is indicative of the macroprudential measures which have been implemented by APRA taking effect and slowing higher loan to valuation ratio (LVR) lending as well as the more recent crackdown on both investor and interest-only mortgage lending.

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The latest quarterly property exposures data released by APRA for the September 2017 quarter shows that ADIs provided mortgages worth $98.211 billion which was 3.3% higher than the value of lending over the same quarter last year.  These new mortgages were split between $67.217 billion for owner occupiers and $30.994 billion for investors.  The value of lending to investors was actually the lowest it has been since the March 2016 quarter.  The value of lending to investors fell by -9.1% over the quarter and is -6.6% lower year-on-year.  After most recently peaking over the December 2016 quarter at $35.572 billion in investor commitments, the value has fallen by -12.9% to September 2017.  While investor demand has fallen, the value of owner occupier mortgage commitments continues to rise to its highest quarterly value since December 2015.

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 The total value of interest-only lending over the September 2017 quarter was $16.603 billion which was -44.8% lower than the value over the June 2017 quarter and -52.8% lower than it was a year ago.  We have recently seen the implementation on the cap of new interest-only lending, limiting it to 30% of new mortgages.  Over the September 2017 quarter, interest-only mortgages accounted for 16.9% of new mortgage lending which was the lowest proportion on record and well down on the 30.5% the previous quarter.  It is a little surprising to see the proportion of lending to investors fall so much over the quarter, especially considering that the cap is 30%.  This potentially indicates that the higher mortgage rates being incurred by interest-only borrowers are actually curtailing demand more so than the cap.

2017-12-11--proportionofquarterlynewmortagelendingbylvrband

The changes to macroprudential policies has resulted in (not-surprisingly) more prudent borrowing.  As a result there has been an ongoing decline in new mortgages being written on high loan to valuation ratios (LVRs).  Over the quarter, $6.676 billion in mortgages were for LVRs above 90%.  Based on this figure, the value of mortgages on LVRs above 90% was -2.3% lower over the quarter, -13.3% lower over the year and it was the lowest quarterly value of mortgages greater than 90% LVR since March 2011.  Over the quarter, the value of mortgages with an LVR of between 80% and 90% was $13.547 billion which was -4.1% lower over the quarter but 3.6% higher year-on-year.  Over the September 2017 quarter, an historic low 20.6% of new mortgages had an LVR greater than 80%.

This latest data highlights that there appears to be a much more prudent approach being taken towards investment and interest-only mortgage lending.  Of course, the macroprudential policies implemented by APRA were specifically targeting these segments of lending which suggests that they are being successful.  Over the coming quarters the most interesting developments to watch will be whether investor lending continues to decline, which we suspect it will.  It will also be interesting to see whether interest-only lending rebounds back to levels closer to the 30% limit or if they continue to languish at much lower levels. If it is the former it indicates that potentially lenders tightened too hard and that there remains demand for this product.  Meanwhile, if it is the latter it suggests that demand for interest-only lending has reduced.