Banks are continuing to lend to the white-hot investor property market with Commonwealth Bank of Australia leading the charge, according to the latest monthly figures from the prudential regulator.
Investment property credit growth is going back up - growing 0.81 per cent for December, which is 10 per cent annualized, on figures from Australian Prudential Regulation Authority (APRA).
While this is healthy for the banks' bottom lines, UBS analyst, Jon Mott, said it is a concerning development given elevated house prices and household leverage. Although the statistics for individual banks continue to be volatile - and regularly restated - CBA appears to be driving this growth.
During December, he wrote in a client note, CBA grew its investor book at 135 per cent above system - the average rate of the lending market. The analyst is expecting the rapid monthly growth in investor loans to be a key topic of discussion at CBA's upcoming 2017 result, especially if this growth was via the broker channel where levels of mortgage application misrepresentation have been extremely high.
Incidentally, by calling the statistics "restated", Mott is referring to central bank estimates which revealed that $48 billion of loans had been reclassified (from investor to owner-occupier) over the past 18 months, with $900 million worth of loans switched in December alone.
Westpac Banking Corporation has also seen a pickup in investor loans at 109 per cent above system but not to the extent of CBA.
Ongoing calls for tax reform
APRA figures show CBA has the strongest annual growth in investor lending of the big four banks. CBA's growth was up 7.2 per cent followed by Westpac at 5.1 per cent per cent, NAB at 4.3 per cent and Australia New Zealand Banking Group shrinking by 1.7 per cent.
"It has now been two years since APRA announced its 'sound residential mortgage lending practices' regime which capped investor property lending growth at 10 per cent and led to a steady slowdown in investor credit, which fell to 4.5 per cent in August 2016," said Mott.
“We believe that, if investment property lending continues to accelerate, it will inevitably lead to calls for further macro prudential regulation - lower growth caps, stricter serviceability metrics as well as ongoing calls for tax reform to stem speculative investment property activity and rampant house price inflation.”
While growth in investor mortgages was particularly strong for CBA and helpful to its bottom line, Morgan Stanley analyst, Richard Wiles, pointed out that CBA has less leverage than its peers to back book re-pricing given investor mortgages account for 35 per cent of their home loan book. In contrast, they account for 39 per cent and 42 per cent of home loans for Westpac and National Australia Bank respectively.
APRA figures show ANZ has the strongest annual growth in owner-occupied lending of the big four banks, at 9.9 per cent. CBA notched up 8 per cent growth and Westpac posted an 8.4 per cent rise, while NAB’s owner-occupied lending grew just 5.3 per cent.