The current state of property lending and housing credit

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The RBA has reported credit growth of 5.3% over the past year to July 2017, which is slower than the 6.6% growth experienced last year. The slowdown reflects business credit growth moving along at a sluggish 4.2% annual rate but according to surveys, business investment will gather momentum.

Growth in credit related to housing has slowed to 7.4% under the 10% cap and it is expected to further slow down based on monthly figures.

Owner-occupier credit growth powers along but total housing credit growth remains 6.6%, unchanged from last year. Personal credit growth is still negative, as consumers tend towards offset accounts and mortgage buffers rather than personal loans and credit cards.

It is becoming harder at the margin to access housing credit especially for investor loans and interest-only mortgages.

The growth in investor loans is below the 10% cap for each major bank, which account for most of the mortgage market so the major lenders may loosen standards again soon.

The truth is, non-standard loans have been picked up by alternative lenders but RBA’s figures show an increase of total stock of outstanding housing credit in July 2017. This is the biggest annual increase in history.

There may be a slowdown but there could be a shift in composition as well. Main lenders continue to increase its stock of mortgages outstanding even if there’s a shift from investor loans to home loans.

It seems the mortgage default rates refuse to increase from benign levels except in Western Australia.

Household cash flows appear weaker if mortgage repayments accelerate. However, the unemployment rate and underutilisation are declining despite the slow wage growth.

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Based on the RBA report, there is an annual increase in housing credit with a slowing in investor credit. Based on history, macroprudential measures are effective at the start but lenders and borrowers always find ways to transact again.

What can you do?

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