Property market sees increase in riskier borrowing

Regulators will be on alert after new data showed strong and accelerating growth in investor and interest-only lending.

Investor lending growth accelerated from 11.7 per cent in 2013-14 to 18.6 per cent in 2014-15, according to quarterly data released today by APRA, the prudential banking regulator.

APRA warned last December that it would regard growth above 10 per cent as “an important risk indicator”, although that was for individual lenders rather than the sector as a whole.

Lenders had $518.3 billion of outstanding investment loans at the end of 2014-15. That represented 39 per cent of all home loans, compared to 35.5 per cent in 2013-14.

Regulators will also be concerned by the growing contribution made by interest-only loans, which, like investor loans, are considered riskier than owner-occupied loans.

Lenders with at least $1 billion of outstanding housing loans had a combined $516.9 billion of interest-only mortgages at the end of FY15, which represented growth of 20.0 per cent, compared to growth of 13.6 per cent in the previous financial year.

These latest statistics might concern regulators, which have been working over the past few months to slow the housing market and thereby reduce risk from the system.

Looking at the overall mortgage picture, Australian lenders ended 2014-15 with $1.3 trillion of outstanding home loans.

That represented growth of 7.9 per cent, compared to 8.6 per cent the year before.

Owner-occupied lending grew 2.0 per cent to $810.3 billion in FY15 after growing 6.9 per cent in FY14.

Households with mortgages are increasingly exposed to debt, although this has grown only marginally faster than the inflation rate of 1.5 per cent.

The average mortgagee had $243,000 left to pay on their home loan at the end of FY15 – an increase of 2.1 per cent on the previous financial year.

[Related: Regulators may overreach with property crackdown]

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