First home buyers return to roost: AFG

  • By Christian Edwards

Fresh data from the Australia Finance Group (AFG) describes a surprise return to form for the troubled national first home buyer (FHB) market, while APRA’s investor caps are already making an impact on higher-risk lending.

The latest AFG Mortgage Index, released this week, revealed an improved FHB segment with lodgments hitting 10 per cent for the first time since the beginning of 2014.

According to AFG interim CEO David Bailey, the national First Home Owner Grant (FHOG) scheme (funded by the states and territories) has “largely been hailed a success”, easing the upfront costs for new entrants to the market. 

“First home buyer numbers have been in the single digits for some time,” Bailey said. “Time will tell if the proposed changes to the scheme go far enough to assist those looking to buy their first home in our two most populous states.”

Bailey said that the effectiveness of the scheme had been questioned of late and this may have encouraged governments to act. 

“The Victorian state government has recently announced a number of changes to the scheme in that state and New South Wales is currently examining their options to help counter rising house prices in that state,” he added.

APRA changes biting

According to AFG’s March index, the APRA-imposed lender policy changes are already beginning to impact on both the investor market and refinancers.

Following mortgage rate hikes across the big four lenders, smaller lenders have followed suit throughout April, independently raising mortgage rates, particularly on the investment lending side of the ledger.

Effective from next week, the Melbourne-based ME Bank has announced an increase in its investor home loan reference rates by 25 basis points. The move will affect new and existing investor borrowers.

“Lenders have been told by the regulator to rein in their exposure to the investor market and APRA continues to monitor growth in lending to investors,” Bailey said. “As a result many lenders have embarked upon a series of rate increases and a tightening of credit policy for investors to comply with APRA’s guidelines.

“This activity has seen investor loans drop from 34 per cent to 32 per cent across the quarter,” he added.

APRA has begun a more active monitoring of higher risk lending, tightening the flow of interest-only (IO) lending to 30 per cent of all housing lending - after borrowing sat closer to 40 per cent - and is enforcing closer scrutiny of loans supported by 10 or 20 per cent deposits.

Bailey told AB+F that lenders have been adjusting rates and policies to APRA’s mood, accordingly, however the full weight of change is yet to be felt.

“The latest announcement by APRA is too recent to be evident yet, however mortgage brokers will be aware of changes made by lenders affected by the new requirements and will consider the individual lender’s appetite for investor loans when looking at options for their clients,” Bailey said.

Animal spirits

According to UBS bank analyst, Jonathan Mott, reeling in interest-only loans from 40 to 30 percent of new loans would cut off new mortgages by around $15 billion annually, resulting in a slowing of credit growth by around 1 per cent.

However, in a note to clients, Mott said APRA's latest moves might trim the sails but not the wind, with the core market remaining intact and motivated.

"What is harder to gauge is the impact on the housing market 'animal spirits' if the marginal buyer is removed from the market," Mott wrote.

According to the AFG, the volume of those participants looking to refinance have also been impacted by the shift, with that segment of the market dropping from 38 per cent to 35 per cent last quarter – its lowest level since the third quarter of 2015.

In overall lodgment numbers, AFG has reported a rise of 8 per cent on the third quarter of last year driven primarily by increasing activity of upgraders, Bailey said.

“A result that should please the regulators is a drop in the loan to value ratio (LVR) in all states apart from South Australia where a marginal increase of 0.4 per cent was evident.” 

The national LVR is now down to 68.6 per cent, the lowest level since the first quarter of 2013.