As the APRA crackdown takes effect, investors set to experience further rate pain
- Average investment growth across all banks softening but still higher than APRA’s recommended 10%.
- Westpac records 4.2% investment lending decline, remains biggest investment lender, with loan book of $149B
- Cash rate expected to hold on Tuesday, but investment loan rates tipped to rise further
October 30, 2015, Sydney – Comments by Graham Cooke, Insights Analyst, at one of Australia's biggest comparison websites finder.com.au:
“finder.com.au analysis shows investment lending has certainly softened on the back of the Australian Prudential Regulation Authority (APRA) crackdown in July, which then found that the average investment growth across banks monitored by APRA was 11.49%, above their recommended 10% threshold. The biggest growth was Macquarie Bank, with 66% growth, up by $3.4 billion, believed to be due to acquiring loans books from other institutions.
“In just released figures from APRA, the average investment growth across all banks year on year to September 2015, excluding those with no investment lending, is 10.3% – still higher than APRA’s recommended 10%, but effectively showing that APRA’s new guidelines are filtering through to the market.
“Out of the big four banks, NAB is leading in growing its investment lending the most in the last year from September 2015 to September 2014, increasing by 13.1% from $83 billion to $94 billion. ANZ takes second place, increasing its investment lending by 10.1% from $83 billion to $94 billion.
Interestingly, we’ve seen a drop in investment lending at Westpac, Australia’s biggest investment lender, of -4.2% since APRA’s new lending guidelines in July. We’ve also seen a slight drop at ANZ (-1.3%) and Commonwealth Bank (-0.6%). NAB has experienced an increase of 0.9% in the same period.
“Despite this, Westpac has seen significant investment lending growth in the last decade, overtaking NAB in 2008, and then overtaking Commonwealth Bank in 2010. Westpac remains the biggest investment lender in the country with a total of $149 billion in investment loans, 17% bigger than it’s nearest rival, Commonwealth Bank.
“Investment home loans have grown 8.3% year on year to total $533 billion across Australia as at September 2015, but it is dwarfed by the owner-occupier home loan market, which is 61% bigger at $856 billion, having grown 8.7% since September 2014. While 80 percent of leading economists and experts in the finder.com.au Reserve Bank Survey expect rates to hold at 2.0 percent this Melbourne Cup day on November 2, we’re tipping more out-of-cycle rate rises for owner occupier and investment loans, alike.
“Rising investment rates, coupled with a cooling property market – highlighted by recent falling auction clearance rates – continues to cause concern for investors as they contemplate how these factors will affect capital growth.
“That said, property is still widely viewed as a strong investment and there’s no sign of this general consensus changing any time soon. Rather, with rate rises hitting the market – and all signs pointing to further rate rises – it’s up to investors to look more closely at where and how they can get the best value for their investments. An essential starting point is comparing market offerings – from the big four to smaller lenders, you need to do your homework to find the best deal for your personal situation. You may also want to consider doing this sooner rather than later, as further rate hikes are tipped to hit the market.”
Note: The figures used in the article of 11.49% year-on-year in July and 10.3% in September are referring to the average of all the individual year-on-year figures across all institutions excluding those with no investment lending.
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