Investor loans plunge in WA as bank action bites

Latest residential lending data from the ABS reveals that the level of investor finance commitments reported over July has fallen sharply in all states except Queensland. 

Sharp declines in lending to investors follow recent action by the regulatory authorities to direct banks to tighten lending conditions to this group. The action by banks was designed to moderate perceived risky lending to investors despite price growth in most capital city housing markets remaining relatively subdued.

Investor loans in Western Australia fell steeply by 12.7 per cent over July to $1.13bn according to the ABS. Although falling investor activity reflects recent tighter lending conditions it is also a product of a generally subdued local housing market.

The value of lending to WA investors  decreased by 3.5 per cent over the first seven months of this year compared to the same period last year. WA is the only state to record a fall in investor activity over the year to date comparisons.

Residential investor lending however accounted for 40.8 per cent of all housing finance approved over July in WA which was just below the 41.3 per cent  recorded over July last year.  

Although investor finance fell sharply over July in WA, approvals for owner-occupied finance in WA increased by 1.0 per cent over the month to $1.64bn. Despite the monthly rise, the value of owner –occupier finance in WA has fallen by 11.2 per cent over the first 7 months of this year compared to the same period last year. This is clearly a more significant decrease than that recorded by investor loan activity.

Reduced demand for rental properties in WA – particularly in Perth as evidenced by relatively high and rising vacancy rates – is providing a double whammy to local investors also confronting tighter lending conditions despite the nature of the local market.

Residential investment remains an important driver of economic activity, particularly for the Western Australian economy which continues to generally confront a downturn in the resource sector putting pressure on the local jobs market.

Dr Andrew Wilson is Domain Group Senior Economist Twitter@DocAndrewWilson