Matt Simpson, CFTe, MSTA
CityIndex
With the talk of a housing bubble in Australia becoming a frequent topic of interest, here is a snapshot summary of the housing section within today's Financial Stability report.
- The composition of housing and mortgage markets is becoming unbalanced, with new lending to investors being out of proportion to rental housing’s share of the housing stock. B
- Risks associated with this lending behaviour are likely to be macroeconomic in nature rather than direct risks to the stability of financial institutions.
- A broader risk remains that additional speculative demand can amplify the property price cycle and increase the potential for prices to fall later.
Housing loan characteristics
- Historically low interest rates and rising house prices may cause some to take lonas they cannot service if rates rise
- APRA emphasise that banks should apply a interest-rate add-on to the mortgage rate when asesing capacity to service the loan
- Some institutions are lending high loan-to-income ratios, seeing the average loan size rise
- Only a small group of these are both high loan-value ratios (LVR) and high loan-to-income. A rise of this group is undersirable and will be closely monitored
- The interest-only share of bank lending has increased for both investors and home owners, so will require close monitoring
- Of these two groups, investors paying interest-only are substantially higher than home owners
- However this doesn't necessariy mean they cannot service this debt, but may be building buffers in different accounts.
Loan performance and other indicators of household financial stress
- Aggregate indicators suggest that household financial stress is generally low
- The share of banks’ housing loans that are non-performing has declined for both owner-occupiers and investors since 2011 peak
- Victoria however has seen a rise in areas of higher unemployment, such as North Melbourne and Outer-West
- The large volume of supply coming in the Melbourne inner-city apartment market increases the risk of further deterioration in loan performance in Victoria.
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