In July 2016, the RBA conceded that some borrowers and lenders have collaborated to shift the classification of their loans from investor mortgages to owner-occupied mortgages, presumably in order to take advantage of lower mortgage rates as well as to get around APRA’s investor mortgage growth caps:
“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 net value of switching of loan purpose from investor to owner-occupier is estimated to have been $41 billion over the period of July 2015 to May 2016 of which $1.1 billion occurred in May. These changes are reflected in the level of owner-occupier and investor credit outstanding. However, growth rates for these series have been adjusted to remove the effect of loan purpose changes”.
Today, The Australian’s Michael Roddan has noted that Australia’s banks continue to re-classify their lending book to make their exposure to the investor market seem smaller than previously believed:
The Reserve Bank yesterday estimated $48bn of loans had been reclassified over the past 18 months, with $900 million worth of loans switched in December alone.
Analysts warned that changes to the prudential regulator’s lending data has made it near-impossible to form a clear picture of the housing market.
“There are adjustments in these numbers which make them pretty useless, especially when looking at the mix between investment and owner-occupied loans,” said Martin North, of Digital Finance Analytics.
Mr North said the problem lay with the banks keeping poor-quality data, which left the regulators unable to provide a “reconciled and transparent” picture of lending.
“Given the debate about housing affordability, we need better and consistent data,” he said…The continual switching of loans also clouds APRA’s ability to monitor the growth in investor lending, having set an annual limit of 10 per cent growth in investor lending on Australian banks two years ago.
I can’t say if anything untoward has occurred – maybe these loans are no longer investor mortgages. But if the banks are found to have fraudulently ‘juked the stats’ on investor lending, then stiff penalties must be applied by APRA.
Moreover, given the big question mark around the quality of the investor data, surely the prudent thing for APRA to do is immediately lower its 10% investor loan limit (which was always far too high) to 5% in order to snuff-out any investor resurgence?
