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Invested in the banks? Profits are set for a big hit
A $25 billion dive in home loan approvals has hit the collective bottom line of the banking sector, which is a favourite among Australian investors.
Invested in the banks? Profits are set for a big hit
A $25 billion dive in home loan approvals has hit the collective bottom line of the banking sector, which is a favourite among Australian investors.
According to the Australian Prudential Regulation Authority’s (APRA) latest quarterly residential property exposure statistics, new home lending volumes dropped by $11.9 billion (12 per cent) in the three months to 31 December 2018, from $100.1 billion in the December quarter of 2017 to $88.2 billion.
Further, over the year to 31 December 2018, new home lending settlements fell by $25.1 billion (6.5 per cent), from $384.4 billion in the previous corresponding period to $359.3 billion.
The decline was driven by a sharp drop in new investment lending, which fell by $17.7 billion (14 per cent), from $126.9 billion to $109.2 billion over the 12 months to 31 December 2018.
Owner-occupied volumes also dropped, contracting by $7.4 billion (2.9 per cent), from $257.5 billion to $250.1 billion over the same period.
In total, the portion of new home loans issued to owner-occupiers grew to 69.6 per cent, while the percentage of loans issued to investors dropping to 30.4 per cent.
The decline in lending volumes over the year to 31 December 2018 coincides with weakened demand in the credit and housing space, triggered by the tightening of lending criteria imposed by authorised deposit-taking institutions amid regulatory scrutiny.
The reduced risk appetite among lenders was reflected in the considerable fall in interest-only volumes and declines in high LVR (loan-to-value ratio) issuance.
New interest-only home loan volumes contracted by $38.6 billion (38.8 per cent), from $96.3 billion in the year to 31 December 2017 to $57.7 billion. The overall share of interest-only loans slipped to 16.1 per cent over the same period.
APRA also reported that in the issuance of housing loans with an LVR between 80 and 90 per cent declined by $4.5 billion (8.4 per cent), while the number of mortgages issued with an LVR of over 90 per cent declined by $3.8 billion (13.7 per cent).
Silver lining
Some institutions have benefited from current market conditions.
APRA’s data indicates that, for year-on-year growth, customer-owned banking institutions have grown their total housing loan book by 8.1 per cent.
By comparison, authorised deposit-taking institutions recorded 4.5 per cent, while it was a 3.7 per cent result for the major banks.
“The customer-owned banking sector is growing faster than the overall banking sector as 12 months of royal commission hearings take their toll on Australia’s investor-owned banks,” said the Council of Small Business of Australia.
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