• The value and number of owner-occupier home loans increased modestly in July, leading to a modest increase in the total value of housing finance.
• The value of investor lending continued to fall, reflecting both tighter lending standards and recent declines in home prices in Sydney and Melbourne, previously favorite markets for investors.
• JP Morgan says recent out-of-cycle variable mortgage rate increases from major Australian lenders represents a “clear headwind to both owner-occupiers and investors”.

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There were no sign of a “credit crunch” in Australia in July with both the value and number of housing loans to owner-occupiers increasing during the month.

However, the value of housing loans to investors continued to fall, resulting in only a small increase in the total value of housing finance.

According to Australia’s Bureau of Statistics (ABS), the value of housing loans rose by 0.4% to $31.431 billion in July, leaving the decline on a year earlier at 5.1%, smaller than the 6.5% drop recorded in the year to June.

Loans to owner-occupiers increased by 1.3% to $21.184 billion over the month. That left the increase on a year earlier at 1.1%, higher than the 0.6% pace recorded a month earlier.

Excluding refinancing, the value of owner-occupier loans fell 0.5% to $14.765 billion over the month, and by 2.3% over the year.

Refinancing of existing loan facilities increased by 5% to $6.419 billion from June, leaving the increase on 12 months earlier at 9.7%.

Helping to explain the drop in total housing finance over the year, the value of loans to investors fell by 1.3% to $10.247 billion during the month. From a year ago, the value of investor finance skidded 15.7%, the seventh double-digit year-on-year percentage decline seen in the past eight months.

The July total for investor housing loans was nearly $5 billion less than the record levels seen in early 2015.

“Investor lending remains very weak in value terms, the accumulated response to tighter lending standards by the major banks,” said Henry St John, Economist at JP Morgan.

“The underperformance in investor relative to owner-occupier lending is consistent with what we would expect in response to a tightening in lending standards, the consequence of both the Banking Royal Commission, and macroprudential policies.”

Reflecting the increase in the value of owner-occupier lending in July, the number of loans to this cohort increased by 0.4% to 52,647 in seasonally adjusted terms.

Loans to purchase existing dwellings increased by 0.6% to 44,098, the same increase as those to construct new homes which rose to 5,899. Loans to purchase new dwellings bucked the trend, falling by 2.2% to 2,650 over the month.

Without seasonal adjustments, the proportion of owner-occupier loans going to first home buyer fell to 18.0% from 18.1%, continuing to pullback from the multi-year highs seen earlier in the year on the back of stamp duty discounts introduced by the New South Wales and Victorian State governments in 2017.

The ABS does not release data on the number of loans issued to investors as part of the housing finance report.

Despite the small lift in both the number and value of loans in July, St John says recent out-of-cycle variable mortgage rate increases from major Australian lenders represents a “clear headwind to both owner-occupiers and investors”.

“The last week has seen three of the four major Australian banks reprice standard variable mortgage rates around 15 basis points,” he says.

“In our view, mortgage rate tightening is a greater headwind for credit than a tightening in lending standards, and we expect to see early signs of a slowing in lending and refinancing behaviour in the coming months.”

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