Despite economic challenges, Australia’s residential mortgage market has remained strong, with growth rates higher than before COVID-19. The latest data from the Australian Prudential Regulation Authority (APRA) shows that residential mortgage growth continues to be robust, even with higher interest rates and tighter lending conditions for banks.
Continued Growth in Mortgages
According to APRA’s latest report on bank performance up to March 31, 2024, outstanding residential mortgage credit increased by 4.1% compared to the previous year, rising from $2.14 trillion to $2.23 trillion. This growth was driven by both loans for people Buying Homes to live in and those buying for Investment. Owner-occupier loans increased by 4.9% to $1.49 trillion, while investment loans rose by 3.8% to $667 billion.
Despite these increases, there are challenges. Affordability and the ability to make mortgage payments have worsened, with a report from ANZ and CoreLogic showing that the average income needed to service a new loan for a typical home reached 48.9% nationwide. Home prices hit a record high in November 2023, coinciding with another increase in the cash rate.
Increase in Investor Lending
Investor lending has grown strongly, following broader market trends. According to the Australian Bureau of Statistics (ABS) Lending Indicators, investor lending surged by 36.1% year-on-year from April 2023 to April 2024, rising from $7.9 billion to $10.9 billion. During the same period, loans to owner-occupiers also increased by 18.7%, from $15.5 billion to $18.5 billion.
The ABS attributes this rise in investor lending to expectations of higher rental incomes and increased borrowing capacity for investors. However, APRA’s data shows a slight decrease in the proportion of total outstanding residential mortgage credit attributed to investor loans, dropping by 0.2 percentage points from 30.5% in March 2023 to 30.3% in March 2024. In contrast, owner-occupier loans’ share increased by 0.3 percentage points, reaching 67.8%.
Challenges and Opportunities in the Mortgage Market
The data shows some challenges in the mortgage market. New residential mortgages decreased by 1.2%, from $132.8 billion to $131.1 billion. Owner-occupier loans also dropped to 64.6%, down by 3.2 percentage points this quarter. Loans overdue by 30-89 days rose from 0.5% to 0.7%, and non-performing loans increased to 1% by March 2024, up from 0.7% the previous year.
However, there are positive signs too. The share of new mortgages for investments increased to 33.2%, up by 2.9 percentage points. Australia’s authorized deposit-taking institutions (ADIs) are in a strong position despite narrower margins and slower profit growth, with capital ratios reaching a new high of 20.5%, up from 19.6%.
Conclusion
The latest APRA data shows the strength of Australia’s residential mortgage market. Despite higher interest rates and affordability concerns, mortgage growth remains higher than before the pandemic. Both home buyers and investors are contributing to this growth. As the market faces economic uncertainties, the strong capital positions of ADIs indicate they can manage future challenges well. This ongoing growth demonstrates Australia’s mortgage market is dynamic and can succeed even in challenging economic times.
Take Advantage of the Strong Mortgage Market.
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