$40.1 Billion (43.0 per cent) Interest-only Loans Written In 4Q 2014

Digital Finance Analytics – 24 February, 2015

By Martin North

http://www.digitalfinanceanalytics.com/blog/40-1-billion-43-0-per-cent-interest-only-loans-written-in-4q-2014/

APRA released their quarterly Property Exposure data to December 2014 today. We see continued strong growth in interest only loans. From DFA research we know these are mostly investment loans, despite the fact that APRA does not split out loan characteristics by investment and owner occupation. We think they should.

At a portfolio level, as at 31 December 2014, the total of residential term loans to households held by all ADIs was $1.28 trillion. This is an increase of $28.3 billion (2.3 per cent) on 30 September 2014 and an increase of $105.4 billion (9.0 per cent) on 31 December 2013. Owner-occupied loans accounted for 65.7 per cent of residential term loans to households. Owner-occupied loans were $840 billion, an increase of $14.8 billion (1.8 per cent) on 30 September 2014 and $57.6 billion (7.4 per cent) on 31 December 2013. Investment loans accounted for 34.3 per cent of residential term loans. Investment loans were $438.9 billion, an increase of $13.6 billion (3.2 per cent) on 30 September 2014 and $47.8 billion (12.2 per cent) on 31 December 2013.

Looking across the various types of ADI:

  • major banks held $1,037.3 billion of residential term loans, an increase of $23.0 billion (2.3 per cent) on 30 September 2014 and $83.7 billion (8.8 per cent) on 31 December 2013;
  • other domestic banks held $142.6 billion, an increase of $7.2 billion (5.3 per cent) on 30 September 2014 and $20.5 billion (16.8 per cent) on 31 December 2013;
  • foreign subsidiary banks held $54.3 billion, a decrease of $0.6 billion (1.1 per cent) on 30 September 2014 and an increase of $1.3 billion (2.5 per cent) on 31 December 2013;
  • building societies held $16.6 billion, an increase of $0.0 billion (0.1 per cent) on 30 September 2014 and a decrease of $0.1 billion (0.6 per cent) on 31 December 2013; and
  • credit unions held $27.9 billion, a decrease of $1.3 billion (4.5 per cent) on 30 September 2014 and an increase of $0.0 billion (0.1 per cent) on 31 December 2013.

Note that the higher growth of other domestic banks and lower growth of building societies and credit unions is in part due to the conversion of eight credit unions and one building society to banks.

ADIs with greater than $1 billion of residential term loans held 98.4 per cent of all residential term loans as at 31 December 2014. These ADIs reported 5.2 million loans totalling $1.26 trillion. The average loan size was approximately $241,000, compared to $234,000 as at 31 December 2013; $463.8 billion (36.9 per cent) were interest-only loans; and $31.5 billion (2.5 per cent) were low-documentation loans.

ADIs with greater than $1 billion of residential term loans approved $93.2 billion of new loans in the quarter ending 31 December 2014. This is an increase of $7.8 billion (9.2 per cent) on the quarter ending 30 September 2014 and $9.1 billion (10.8 per cent) on the quarter ending 31 December 2013. $58.4 billion (62.7 per cent) were for owner-occupied loans, an increase of $4.9 billion (9.2 per cent) from the quarter ending 30 September 2014; $34.8 billion (37.3 per cent) were for investment loans, an increase of $2.9 billion (9.1 per cent) from the quarter ending 30 September 2014;

Brokers accounted for 44.7% of loans by value, a record, since 2008. They reached an all time high of 46.7% prior to the GFC. However, if you take loan size into account, brokers continue to have a field day at the moment, thanks to high volumes and high commissions.

$10.6 billion (11.4 per cent) had a loan-to-valuation ratio greater than or equal to 90 per cent; and $0.6 billion (0.7 per cent) were low-documentation loans.

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