Growth in mortgage lending to slacken

by Manuelita Contreras25 Jan 2018

Growth in mortgage lending is likely to slow to around 4% in 2018, based on continued record-low interest rates and stable unemployment, says Fitch in its latest global housing outlook.

However, continued under-employment, lower investor demand and tougher lending practices will offset this growth.

Fitch says that lower investor demand, rising transaction costs, higher capital requirements for banks, added restrictions on  lending and tougher serviceability parameters have limited borrowers’ access to mortgages.

Citing CoreLogic data, Fitch notes that home sale transactions in the year to October 2017 went down by 4.7% across Australia. Combined capital city sales and combined regional market sales down were by 6.0% and 2.2%, respectively.

Fitch expects recent regulatory measures to reduce lending supply to investors and moderate the price growth of houses in Sydney and Melbourne this year. 

APRA announced in March last year the capping of the amount of new loans that can be interest-only at 30%, after limiting the growth of investment lending up to 10% per year in 2014. It also called on banks to make sure serviceability metrics are set at appropriate levels and to continue to limit lending growth in high-risk segments, including high loan-to-income loans and high LVR loans.

Adding to the pressure on housing prices in Sydney and Melbourne are the ownership restrictions put in place in NSW and Victoria. 

Last year, the federal budget removed capital gains tax exemptions for overseas buyers, and the NSW government doubled the stamp duty for foreign buyers from 4% to 8% and raised the annual land tax surcharge from 0.75% to 2%. Meanwhile, the Victorian government’s vacant residential land tax took effect earlier this month.

Overall, tighter mortgage regulation, record low rental yields, and growing supply will slow the price growth of Australian  homes, notes Fitch.

Many economists are unanimous in their view that the Australian house market boom is reaching an end. A number projected a moderation in price growth to single digits this year, with HSBC economists forecasting that national housing pricing growth will slow to 3-6%.

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Slowdown in house prices to continue: HSBC