Landlord loan boom starting to cool

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Putting the brake on loans to property investors seems to be working. Photo: James DaviesIt’s taken a long time, but attempts to put the brakes on bank lending to property investors are finally showing some results.

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One of the key reasons house prices in Melbourne and Sydney have surged so much in recent times is the strong growth in borrowing by property investors.

The value of housing investor loans has been growing at its quickest pace since the global financial crisis, pumping more money into bricks and mortar, and helping to inflate prices.

Now, however, things appear to be slowing.

Recent figures show the value of new loans being approved for housing investment is growing at the slowest pace in five months, while the total pool of all outstanding investor loans is expanding more slowly.

If this slowdown in borrowing by landlords continues, experts say it could take some of the heat out of the parts of the market most popular with investors.

More than other buyers, it is investors who have propelled the housing markets of Sydney and Melbourne into the stratosphere these past few years.

In NSW, investors made up a whopping 62 per cent of the loan approvals in June, while in Victoria their share was also above 50 per cent.

That’s far above the long-term average of about 40 per cent nationally, and the trend is one reason why authorities have been warning about the dangers of “speculative demand” in the housing market.

It was so concerning that the Australian Prudential Regulation Authority in December last year told banks to slow their loan growth to 10 per cent a year or face financial penalties.

About 10 months later, there are signs the loan boom is slowing. The value of all investor loans is still shooting up at 10.8 per cent a year, but this compares with more than 11 per cent in June, and most analysts reckon the growth rate will slow further.

This is occurring after banks jacked up interest rates for investors, and introduced tighter credit policies.

RP Data’s Cameron Kusher says a slowdown in lending to property investors could give people competing with investors – such as first-home buyers – an opportunity.

“If you slow down that segment that’s so active, then you might start to see the rate of capital growth in the Sydney and Melbourne housing markets start to slow as well,” he says.

In particular, Kusher says less demand from investors should dampen demand for apartments in outer suburbs, which tend to attract more investor buyers.

“I think you’ll still see prices and values rising, but it just might slow them down a little bit,” he says.

The impact probably won’t be “dramatic”, he stresses, as there is still strong demand from owner-occupiers.

But when Sydney prices are up 17.6 per cent in the last year and Melbourne prices are up 10.6 per cent, most analysts agree growth cannot continue at such a pace.


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