Home Loans – what impact are regulation changes having?

APRA has kept a close watch on home loans for the past four years.

Citing ‘horribly low’ standards in the mortgage industry. After concerted efforts to rein in risky lending on home loans, the financial services regulator recently expressed satisfaction with the improvement in lending standards.

The rather unpopular measures have included a 10% cap on lending to property investors, introduced in 2014, which could now be eliminated on the back of a drop in credit growth and a more stringent assessment of borrowers’ ability to repay home loans. Also under consideration is a change from limits around loan size relative to borrower income, to controls on total debt relative to borrowers’ income levels.

The tightening standards have played a part in moderating home prices across Australia and driving a fall in the proportion of new lending at high LVRs for both investors and owner-occupiers. But how weak is the growth in housing credit?

What does home loan lending data suggest?

According to figures from the Australian Bureau of Statistics (ABS), there does not seem to be a big impact on housing financing value and number of housing loans.

• Dollar value of housing financing remained healthy, increasing 0.5% to $31.9 billion in May. It marked a 3.7% fall over 2017, and small uptick from the 3.3% decline over the past 12 months to April.
• The decline in value of investor home loans was also marginal. It fell 0.1% to $10.7 billion, albeit continuing the deceleration seen in the past couple of months.
• Owner-occupier financing increased 0.7% to $21.1 billion, marking an increase of 2.1% over the year.
• The number of home loans approved and loans to purchase or construct new dwelling increased.
• Though the dollar credit to investors fell 13.4% from the previous year, it was an improvement on the 15.2% decline seen over the past year to April

Economists believe that the numbers don’t suggest a trend reversal, rather a moderation in credit growth, which may persist in the coming months.

What does all this mean for property investors?

Simply put, the banks are in business to deliver home loans and want to do so.  If you are about to buy an investment property there is still a big appetite to lend from all lenders but the approval process has become more stringent.  The best thing to do is be prepared by getting good advice and a loan pre approval to know exactly what your borrowing situation is.