The Reserve Bank’s housing finance data for June revealed a slowdown in loans to investors, while loans to owner-occupiers increased.
Taking a closer look at the figures, UBS analysts Jonathan Mott and Rachel Bentvelzen said that monthly growth in investor lending had slowed to 0.41% in June, down from a peak of 0.76% in December.
The slowdown in overall home lending hasn’t been as steep. The Reserve Bank’s figures indicate that annual housing credit grew by 6.6% for the year to June 2017, which is a small change from the 6.7% growth seen at the same time last year.
Given that lending to first-home buyers is still near record lows, Mott and Bentvelzen said that part of the spike in owner-occupied loans could be explained by existing homeowners upgrading to larger properties.
Mott and Bentvelzen also suggest that the shift in housing finance data could have been the result of some investment borrowers telling their lenders that they intend to occupy the property in order to benefit from lower interest rates. In other words, some borrowers could be engaging in mortgage fraud to avoid the higher interest rates applied to investor loans, particularly interest-only investor loans.
“While it is plausible that there has been an increase in upgraders, we would not be surprised if borrowers are tempted to apply for or re-classify themselves as owner-occupiers given the approximately 60 basis point differential in interest rates between owner-occupier and investor loans,” the analysts said.
The issue of mortgage fraud was first explored by Mott and Bentvelzen last October, when their research revealed that nearly one third of prospective borrowers admitted that their mortgage applications weren’t factually accurate.
“Following the introduction of an interest rate differential between housing loans to investors and owner-occupiers in mid-2015, a number of borrowers have changed the purpose of their existing loan,” the Reserve Bank said. “The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $55 billion over the period of July 2015 to June 2017, of which $1.3 billion occurred in June 2017.”
Despite the Australian Prudential Regulation Authority’s introduction of macro-prudential measures to control systematic risks in the housing market, the Reserve Bank’s figures suggest that both banks and investors will go to creative lengths to get home loans approved.