Investor lending tumbles despite rate cut

by Julia Corderoy13 Apr 2015
Housing finance activity was flat in February despite the 25 bps cash rate cut, the latest official figures reveal, with investor lending activity recording a surprise tumble. 

According to housing finance statistics released by the Australian Bureau of Statistics, the total value of home loan finance commitments dropped 1% in February. However, the value of finance for investors, which has been driving housing market activity over the past year, tumbled 3.4% over the month.

Craig James, chief economist at CommSec says this was a surprising result given the Reserve Bank cut the cash rate to 2.25% in February.   

“It does seem to suggest that potential home investors are taking heed of the Reserve Bank’s warnings on over-leveraging in a low interest rate environment, in conjunction with the changes announced by APRA earlier this year,” he said.

However, James says it could also be a strategic decision by property investors, as the decision to cut rates indicates a shift in the Reserve Bank’s mindset.  

“Importantly the February rate cut provided a clear shift in mindset. Prior to the February Reserve Bank Board meeting the discussion centred on the likelihood of a rate rise later in the year. Now the discussion is on further rate cuts and a clear shift to an ultra-low rate environment over the next year. And as such it is likely that housing activity will continue to strengthen over the coming year.”

According to the Real Estate Institute of Australia (REIA), the overall flat finance figures simply suggest that the boom is coming out of the housing market. 

“The February 2015 lending figures indicate a market that is moderating with February being the fifteenth consecutive month of modest drops in lending levels if refinancing is excluded,” REIA President, Neville Sanders said.

“With moderating housing lending and GDP growth below trend, the concerns of an overheating property market should be laid to rest.”