Investors surge into winter despite tighter lending

Residential investors have clearly shrugged off recent attempts by policymakers and banks to restrict activity from this group through higher mortgage rates and generally tighter lending conditions.

The latest ABS data reports that the original value of loans approved for residential investors over June increased sharply by 4.9 per cent over the month to $14.87 billion. This was 7 percent higher than recorded over the same month last year with the total lending to investors over the first half of this year now 12.5 per cent higher than recorded over the same period last year.

Investor lending accounted for 49.5 per cent of all residential lending excluding refinancing over June which was the highest market share reported since June last year.

APRA the financial regulator and banks have recently introduced tighter lending policies designed to constrain residential investor activity, reflecting questionable perceptions of supposed heightened risk in housing markets.

This heightened risk assessment reflects concerns over possible increases in official interest rates which remain fanciful in the foreseeable future given the current and ongoing underperformance of the local economy.

Investor activity continues to be driven by higher prices but also increasingly by the rising superiority of overall residential investment returns in a low yield, low income growth economy.

Of concern to banks and the maintenance of their loan market share, rising demand for residential investors may be increasingly accommodated by secondary lenders or international financiers outside the APRA sphere of influence.

The concern for the economy is that higher rates for investors may be passed on to tenants in tight rental markets, where high and rising rents are already causing hardship and are a clear constraint to consumer activity and confidence.

Andrew Wilson is Domain Group Chief Economist Twitter@DocAndrewWilson join on LinkedIn and Facebook at MyHousingMarket