CoreLogic says it is interesting as the Reserve Bank has declined to look at any restrictions on this type of lending.
“One implication could be investor demand for property has eased, perhaps as they react to the phased removal of interest deductibility and instead raise their equity levels as quickly as possible by repaying some mortgage principal,” says Kelvin Davidson, CoreLogic’s chief economist.
Reserve Bank figures show mortgage lending last month was $8.5 billion about $3.2 billion higher than a year ago.
“One interesting aspect of the split by LVR/borrower type is that first home buyers basically have a monopoly on the money being lent out with less than a 20% deposit,” says Davidson.
CoreLogic’s breakdown of the lending figures by loan-to-value ratio (LVR) shows that banks still have a cautious attitude when it comes to deposits.
Only 11.4% of owner-occupier loans are being made with less than a 20% deposit – versus the speed limit of 20%.
Of that 11.4% of “exempt” owner-occupier lending, about four-fifths is accounted for by first home buyers (FHBs).
Put another way, FHBs – and their banks – are utilising the speed limits to enter the market with less than a 20% deposit.
At the same time, the share of high LVR lending going to investors has stayed low, and the new breakdown relating to 40% deposits shows the same message.
“Nothing lasts forever, and we suspect that ‘slowdown’ will be a key word used to describe lending activity (and the wider property market) over the coming months.
“When it comes to the overall themes for lending activity, the increases in mortgage rates have become a key issue in the past few weeks – especially since those with mortgages have larger debts than before, and even a small rise in interest rates from the current low base works out to be a large proportional change, requiring an adjustment to other areas of spending.”
However, says Davidson, it’s far too early to be worrying about issues like negative equity and mortgagee sales.
After all, mortgagee sales themselves have been rock-bottom lately with just 16 in the second quarter of this year.
“Most commentators also agree that the speed and scale of interest rates increases over the next year or two will be slow and modest by past standards – partly because of the fact that debt levels are higher than before.
“On top of that, unemployment is falling and expected to continue on that path, meaning most households should be able to adjust to higher mortgage rates.
“The property market is probably at its peak – or perhaps [peaked] even slightly in the past – and ‘slowdown’ will be the key phrase for the next six to 12 months,” he says.