CoreLogic: Risky mortgage lending on the rise

CoreLogic has released new data showing the increasing risk profile of Australian mortgage lending as investors have flooded back into the market.

Mortgage lending by category

Investors are storming back into the property market.

While the percentage of high loan-to-value ratio (LVR) lending fell over the March quarter to 10.4% from 11.3% – likely reflecting the reduction in first home buyers active in the market:

High LVR mortgage lending

The percentage of high LVR mortgage lending fell in the March quarter.

The percentage of mortgages written at high loan/debt to income ratios has risen sharply over recent quarters:

Debt to income mortgages

High debt-to-income borrowing on the rise.

Nevertheless, Core Logic does not believe that these figures warrant regulatory action in the market:

Part of the lift [in high loan to income lending] may be attributable to higher income borrowers being active in the market, with higher income households generally accounting for a large share of total household debt. This is also reflected in the faster capital growth rates currently observed at the higher end of the housing market, where high-end property buyers may be more active.

The increase in indicators for loans regarded as higher risk remains relatively low. This suggests that any short-term, formal policy changes to mortgage lending is unlikely. In the latest Quarterly Economic Review from CoreLogic, we noted there are also ‘softer’ signs of strong lending standards being enforced, with industry addresses and statements signalling the importance of monitoring and maintaining prudent lending standards. With property prices rising rapidly, any changes to credit availability would likely be communicated and deployed carefully.

My view is that we are unlikely to see regulatory action to curb the housing market until after next year’s federal election.

Despite the surge in interest from investors, their participation in the market remains well below prior peaks. This means that the housing market is still being driven by owner-occupiers:

Australian mortgage demand

Owner-occupiers still driving the mortgage market.

Whacking owner-occupiers with regulatory action is far more difficult politically than whacking investors.

Moreover, APRA chairman Wayne Buyers is politically indebted to Josh Frydenberg after he reappointed Byers despite APRA being shown as incompetent by the Hayne banking royal commission.

Thus, Wayne Byers will be loathe to take macro-prudential action that would upset the housing boom and put the Morrison Government’s reelection chances at risk.

Unconventional Economist

Comments

  1. The High LVR lending is in truth far higher than reported. Once the millenial/zennial has coerced the folks or granny to hand over their land title for a guaranto loan. Its 75-80% on the banks books. Risk is way up as shown in High DTI loans written.

    • So the banks have made 1 = 2. Loose one house = Loose 2 houses. Last year I was mooting what concoction of tricks they will come up with next. Japan came up with multi generational mortgages before the 1990s crash. Some people are still paying down apartments that are still worth less in nominal terms than they were in 1989.

  2. Display NameMEMBER

    A quality conflagration is being constructed. No stone left un-turned when looking for ways to leverage up just a tad more.

    Interest rates can never go up again. Not in any meaningful fashion. The new normal is government and central banks picking winners. There is no market.

    • Attending an open home this week. I heard the real estate being asked “what’s the price guide?” Their response….”I really can’t give you a price…” – they then go on to cite numerous examples of price guides being smashed by 20%-30% and $100,000’s.

      My point is – I think you’re correct, it’s not a market. How it can be a true market when prices are unknown (and unknowable) and price discovery only occurs in the final 30 secs of an auction?

    • Jumping jack flash

      “Interest rates can never go up again”

      Nonsense. Sure, they can’t go up *right now*, but once that flood of inflation sloshes around the world and incomes start inflating again as a result, interest rates will be able to rise safely without destroying everything.

      The whole place is backwards and upside down because banks run the show, and banks necessarily see the economy backwards because their debt is equivalent to economic antimatter.

      Back in ancient times there used to be this strange thing we did called manufacturing, which turned raw materials skillfully into finished products to sell to the world for profit. Debt was used to increase manufacturing capacity, which created extra revenue to be used to repay the debt principal and interest.

      That was far too slow and inefficient to get rich from, and terribly damaging to the environment, so the banks created the New Economy which runs on pure debt. Its much cleaner, safer, and quicker to get rich from a pile of [someone else’s] debt. No manufacturing required at all, just debt, the debt growth rate, and [the missing ingredient for the past 10 years or more] CPI!

      • Jack,
        Do you remember a vehicle called the “Ford Capri”? The second re-incarnation of it was a bit sporty with a convertible soft top. As part of Ford’s advertising they boasted that they had exported it to the US. They didn’t mention that they paid for those exports to a few dealers overseas in order to make the ad. They are pretty rare now and are probably a collectors target.

  3. Jumping jack flash

    “Risky” lending is simply required.
    Let’s not look too closely otherwise we’ll have a repeat of 2008, and nobody wants that again!

    Let the debt grow.

  4. Leith,

    Or is it Leeth. Or Lieth?
    You have Mentioned a bloke called Wayne Buyers and someone called Byers in the same sentence. Could it be that you are referring to Wayne Byres – the chairman of APRA? If you have difficulty in getting the name right how can we take your article seriously?

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