Tightening in lending standards not the cause of housing credit growth decline: RBA

The tightening in lending standards over the past year was not the cause of the recent decline in housing credit growth, the RBA has suggested.

Liaison with banks, other lenders and mortgage brokers suggests that the demand for housing loans has declined.

"Liaison also reported that most people who apply for a housing loan can still obtain one, though they have to provide more documentation, answer more questions and wait a few days longer to be approved."

The new landscape sees higher competition between lenders to issue new loans to low-risk borrowers, the RBA advised.

"Liaison with mortgage brokers and banks suggests that lenders are competing vigorously to attract borrowers with high-quality credit profiles that are applying for owner-occupier P&I loans. "

"In particular, owner-occupiers with low loan-to-valuation ratios who can demonstrate the ability to service their loan are being offered quite low interest rates."

"Liaison also suggests that borrowers with these characteristics who have had a home loan for some time and want to refinance can often obtain a lower interest rate from another institution or convince their existing lender to lower the rate that they are paying."

There has been a slowing in credit growth, primarily for investors, as the credit given by major banks to investors contracted, consistent with a decline in investor housing loan approvals by these banks.

The RBA noted, "However, this had been partly offset by a pick-up in investor credit growth at a number of other ADIs and non-ADIs."

"The slowing in credit growth is consistent with reduced demand for housing finance, particularly from investors."

"Indeed, liaison with major banks and mortgage brokers indicates that they have been receiving significantly fewer loan applications over the past year or more."

"Also, liaison with the banks and mortgage brokers indicates that most loans are still being approved; banks reported that the conversion rates of applications to approvals were stable at high levels in 2018."

The fall in housing prices in major markets appears to have reduced the demand for credit, particularly from investors, not the other way round as has been previously suggested.