New Zealand Markets close in 5 hrs 20 mins

Investor surge drives August mortgage rise

Alex Druce
Investors are taking advantage of softer borrowing rules and record low interest rates

Mortgages have again expanded in number and in size as property investors take advantage of relaxed affordability guidelines and falling interest rates.

The combined value of loans granted to housing investors and owner occupiers grew by a seasonally adjusted 3.2 per cent in August to $33.47 billion - a slower pace than July - dragged down by softer than expected figures for owner-occupiers.

The value of home loans to owner-occupiers climbed by 1.9 per cent to $13.55 billion for the month, below the 3.0 per cent growth predicted, while the number of new owner-occupier mortgages excluding refinancing increased by just 0.7 per cent to 32,740, also falling short of an expected 2.3 per cent climb.

The value of investor loans, however, expanded by 5.7 per cent to $4.88 billion, handily beating predictions of a 3.0 per cent climb, Thursday's figures from the Australian Bureau of Statistics showed.

Unlike owner-occupier lending, investor lending expanded on the previous month.

The value and volume of lending remains subdued compared to a year ago in every category except for first time owner-occupier home buyers, where total loans jumped by 5.2 per cent to 9,869 for August and are now up 8.0 per cent since August 2018.

Lending for refinancing climbed 7.7 per cent for the month to $10.1 billion, now up 6.7 per cent on a year ago.

Westpac's Matthew Hassan said, while a mixed bag, the data was consistent with a clear turnaround in the housing market since the middle of the year.

"The detail point(s) to a much more evenly balanced mix of gains across owner occupier and investor segments," Mr Hassan said.

Total mortgage lending surged by an unexpectedly large 5.1 per cent in July after the Australian Prudential Regulation Authority eased its serviceability requirements so banks no longer needed to ensure customers could still repay their loan at a 7.0 per cent interest rate.

Instead, lenders can now set their own minimum rate floor and use a 2.5 per cent buffer, which the prudential regulator acknowledged could mean larger loans for some.

The Reserve Bank also twice lowered the cash rate in June and July, with the back-to-back cuts bringing the rate to a record low 1.0 per cent.

The RBA cut for a third time in October, but that was after the August lending data period.

JP Morgan's Sally Auld said Thursday's data was further evidence for the RBA that the first 50 basis point of easing was being transmitted to the broader economy via the traditional channels.

"All else equal, this should provide further support to the RBA's narrative of a gentle turning point in the economy in 2H19," Ms Auld said.

The increase in lending during August follows a report from property group Domain that rental prices in the major Sydney market are set to climb as property prices continue to rise and lease availability begins to shrink again.

The ABS said total lending for the month increased by 0.5 per cent to just over $65.3 billion.

The number of loans for the construction of new dwellings rose by 0.3 per cent to 5,253, following a 1.6 per cent fall the previous month.

The business lending decline accelerated, however, with a 2.1 per cent drop to $31.83 billion, following a 1.1 per cent decline in July.

The Australian dollar was largely unchanged after the release of the data, but climbed from 67.15 US cents to 67.42 US cents by 1320 AEDT on reports China and the US were considering a currency agreement.