While recent measures by the Australian Prudential Regulation Authority (APRA) have reduced growth in higher risk loans, analysts from financial consultancy Morgan Stanley are unsure about its effect on the upward surge in investment lending.
“We are not convinced that it will materially slow growth in investment property lending or the build up of household debt,” the analysts wrote in a research note released 30 March.
The team, headed up by equity analyst Richard Wiles, expect APRA’s new rules targeting interest-only lending will combat high risk lending for two reasons:
- Interest-only loans account for approximately 40% of new loans, according to figures from APRA
- Westpac has disclosed around 12% of new investment property loans (IPLs) now have an LVR of more than 80% at origination
However, they pointed out that growth in new IPLs remain 3-4% below the regulator’s pre-stated investment loan cap of 10%.
“What's more, industry feedback suggests that there is still significant demand for IPLs and the recent re-pricing ensures that banks are still highly incentivised to grow.”
This means that more action is needed to tackle the growth in investment lending, they said.
“APRA stated that it ‘may adjust the above measures, or implement additional ones, should circumstances warrant it’. In our view, it may need to lower the 10% IPL speed limit and it should lift mortgage risk weightings, particularly on IPL.”
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