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Category: Banking / Money and Monetary Policy / Business, Economics and Finance

Investor home lending hits fastest pace in 12 months

12:43 UTC+8 March 31, 2017 | Stephen Letts

Investor lending grew by 0.6 per cent in February. (ABC News)

Investor lending grew at its fastest pace in 12 months in February, highlighting the banking regulator APRA's concerns about overheating in the sector.

Key points:

  • Analysts forecast impact of recent mortgage rate hikes and APRA action will start to slow things down
  • APRA announced a new set of regulations targeting one of the banks' fastest growing products, interest-only loans for investors
  • Business lending contracts again posing threat to economic growth

Private sector credit data released by the Reserve Bank showed that investor lending grew by 0.6 per cent in February, to be up 6.7 per cent over the year.

Owner-occupier loans grew at 0.5 per cent for the month and 6.2 per cent during the past 12 months.

"The measures taken over the last couple of years by regulators to curb investment lending had a temporary impact that has faded," Commsec's Savanth Sebastian said.

Mr Sebastian said with investor finance now at a 12-month high, it was no surprise regulators had taken additional action to slow things down.

Just prior to the figures being released, APRA announced a new set of regulations specifically targeting one of the banks' fastest growing products, interest-only loans for investors.

The new rules limit interest-only loans to 30 per cent of all new residential mortgage loans and tighten limits on loan-to-value ratios.

However, the February data reflected lending conditions before the recent spate of out-of-cycle home loan rate increases from all the big lenders.

Over the past month the "Big Four" banks have responded to APRA's less-than-subtle demands by raising investor mortgage rates by around 0.25 percentage points.

"The bank mortgage re-pricing should begin to act as a headwind to investor credit growth as we head into mid-2017," JP Morgan's Henry St John said.

Outside of housing, lending was very subdued.

Business loans fell by 0.1 per cent in February, the second consecutive month of contraction.

On an annualised basis, business lending is only growing at 3.7 per cent, the slowest pace since mid-2014.

Mr St John said the figures painted a disappointing picture for non-mining business investment, particularly as it was a core tenet of the RBA's growth outlook.

"Continued sluggish growth in business credit poses a risk to Australian growth outcomes, particularly at a time where real residential investment is in the process of cooling," he said.

AustraliaPlus


 

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