IO loans stymied
The prudential regulator APRA released the latest quarterly data on ADI lending statistics and exposures.
The mortgage arrears rate - as measured by impaired loans plus loans 30-plus days past due - increased, albeit modestly, to 1.69 per cent (note this data is solely related to ADI lenders).
Western Australia and Queensland's cyclical but burgeoning economies have generally helped loan arrears to stay low.
There's comparatively little higher risk lending these days, and practically no lo-doc lending to speak of.
Although there's far less high debt-to-income lending now, there has been a bit of an increase in low-deposit lending over the past three quarters of data to 7 per cent of new housing loans, mainly due to first homebuyers taking advantage of the Commonwealth deposit guarantee.
The flow of new interest-only lending held steady at 20 per cent of loans...about half of what we were once used to seeing.
The overall stock of outstanding interest-only (IO) loans fell to a new all-time low of 11 per cent of outstanding housing loan balances by value.
There has been a stunning shift here resulting from prudential/regulatory intervention which severely stymied the flows of IO lending, and then saw an interest-rate differential for this loan product type.
It may well be that the bottom is in now, and the flow of interest-only picks up gradually from here.
Every quarter the new low in IO loans is seemingly widely celebrated, but this does also add holding costs to investments, and in recent years we have witnessed steepling rents, and a chronic shortage of housing stock overall.
The 3 percentage points lending assessment buffer hasn't much helped with this trend either, and hopefully this will also be dropped after the first weak inflation print.
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Actually, while we're here...there's been a lot of hype about mortgage arrears, some of which has been justified, but S&P Global Ratings reported a surprise decline in Australian Prime SPIN mortgage arrears in July to just 0.94 per cent.
Perhaps not so surprisingly, non-conforming SPIN arrears increased to 4.19 per cent.
The recent improvement in prime arrears has been very much related to the resources-driven boom, especially in Western Australia, and to a lesser degree, Queensland.
Landlords have felt the pain of rising holding costs, and some have sold up; but for those remaining in the market rents have increased and rental vacancy rates have been at record lows.
As such overall RMBS arrears were notably higher for owner-occupiers (1.52 per cent) than for investment loans (1.18 per cent).
Overall, things have held up pretty well and most stretched homeowners have hung on, with respite set to come in the form of lower mortgage rates in 2025 and beyond.
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