Conflicting reports from various sources, including the Australian Prudential Regulation Authority (APRA) and UBS, paints a murky picture of APRA’s two-year long effort to curb lending to housing investors.     

In an attempt to reduce what were considered to be building risks within Australia’s housing market, APRA announced new macroprudential measures on December 9, 2014. These measures were designed to reinforce “sound residential mortgage lending practices” by lenders.

“In the context of historically low interest rates, high levels of household debt, strong competition in the housing market and accelerating credit growth, APRA has indicated it will be further increasing the level of supervisory oversight on mortgage lending in the period ahead,” APRA stated.

In response to concerns about the sharp acceleration in lending to housing investors, APRA announced it would introduce a 10% annual cap in credit growth to this segment for each authorised deposit-taking institution. 

Two years on and it appears that the annual cap is working—at least based on recent private sector credit and housing finance figures released by the Reserve Bank of Australia and the Australian Bureau of Statistics.

From April 2015 to July 2016, annual growth in investor credit slowed from 10.8% per annum to just 4.8%, a level that has not been seen since November 2009. This slowdown is mirrored by recent housing finance data released by the Australian Bureau of Statistics. The housing finance data revealed that the value of new lending to investors fell by 9.3% YoY in July to $11.842 billion.

However, other reports suggest that the perceived slowdown in credit growth and new lending may be misleading. According to a recent in-depth survey conducted by UBS’ Australasia equities and economics teams, investor lending may be growing rather than slowing down.

The survey polled 1,228 Australians who’d taken out a residential mortgage over the last 2 years, dividing them into what UBS calls the “2015 vintage” and the “2016 vintage”. Out of these respondents, 374 had taken out a loan in the 12 months to August 2015 (i.e. 2015 vintage), and the remaining 854 had taken out a loan in the year to August 2016 (i.e. 2016 vintage). Each respondent was asked 63 separate questions.

“When customers were asked the ‘current use of the property’ (not the bank classification at the time of application) 60% of respondents in the 2016 Vintage said it was for primary residence or holiday home, down from 69% in the 2015 Vintage. This reduction is statistically significant at a 95% confidence interval,” said the UBS report.

“Investment properties picked up to 33% of properties purchased in the 2016 Vintage compared to 28% in the 2015 Vintage.”

The UBS survey’s findings contradict official statistical releases, as the data indicates that the financing of investment properties is statistically significant. UBS believes that some respondents may have chosen to lie when stating the purpose of their loans.

Respondents were motivated to engage in deception to avoid the higher interest rates introduced on investment property compared to owner-occupied mortgages.

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