Economists warn on debt risks as mortgage lending heats up


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Economists said the boost came from a combination of regulatory easing from the Australian Prudential Regulation Authority (APRA), through the abolishment of the 7 per cent floor rate used by banks to assess the repayment capacity of new loan applicants, along with the surprise Coalition victory in May’s federal election and three interest rate cuts from the Reserve Bank of Australia (RBA).

“Growth in new mortgage commitments has been explosive since mid-year,” JP Morgan economist Ben Jarman told clients in a note

“The upturn in new lending commitments is pronounced enough to suggest annual housing credit growth will be rising again by early next year,” he said, adding that could lead to renewed macroprudential restrictions from APRA to prevent further growth in household leverage.

“We do not think regulators have much appetite for credit growth overshooting income growth on a sustained basis.”

With many forecasters expecting another rate cut from the RBA next year, ANZ’s Ms Timbrell said this could push household debt levels even higher, increasing financial stability risks.

“If household debt were to rise further, that could move the needle on the balance between the stimulatory effects of rate cuts and financial stability risks,” she said.

The increase in September was entirely driven by owner-occupier financing, offsetting a decline in the value of new lending to investors after several months of rapid growth.

The ABS said new loans to owner occupiers rose 3.2 per cent to $14.2 billion, adding to the 3 per cent plus gains seen in the prior three months. Compared to a year earlier, the value of new lending to this category rose 5.6 per cent, the fastest annual increase since February 2018.

After soaring 6.5 per cent a month earlier, the largest gain since September 2016, the value of new investor loans reversed much of that lift in September, falling 4 per cent to $4.69 billion, leaving the decline from a year earlier at 13.6 per cent.

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In New South Wales, Victoria and Queensland, new owner-occupier approvals rose 1.5, 2.4 and 3.3 per cent respectively, extending the rebound from the lows earlier in the year to 10.9, 10.6 and 12.1 per cent.

In terms of value, owner-occupier lending has jumped 18 per cent in New South Wales, 13 per cent in Victoria and 12.1 per cent in Queensland from the lows seen this year, including growth of 1.5, 2.4 and 3.3 per cent respectively in September alone.

According to CoreLogic’s Daily Home Value Index, home prices in Sydney, Melbourne and Brisbane-Gold Coast rose 0.7, 0.4 and 0.1 per cent respectively in the first eight days of November. From the recent cyclical lows, prices in Sydney and Melbourne have both increased 6.5 per cent and by a smaller 1.8 per cent in Brisbane.

“If housing values continue to rise at the same rate recorded over the past three months, national dwelling values could reach a new record high in six months,” said Tim Lawless, head of research at CoreLogic.

Mr Lawless said any evidence of renewed speculative activity in the housing market, or a relaxation in lending standards, could prompt APRA to step in to cool the housing market.

“It could be the trigger for a new round of macroprudential policies aimed at maintaining prudent lending standards and keeping a lid on further accrual of housing related debt,” he said.

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