APRA curbs weigh on home loan approvals

Home loan volumes fell by more than expected in April in another sign that tighter lending conditions are starting to cool the runaway property market that has worried regulators.

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The number of home loan approvals fell 1.9 per cent during the month – compared to a 1.0 per cent dip forecast by economists – for a third straight monthly decline.

The value of mortgages declined by a seasonally adjusted 1.6 per cent to $32.4 billion, according to data released on Friday by the Australian Bureau of Statistics.

“Today’s numbers capture the early impact of APRA’s latest rule changes, which limit new interest-only lending,” CBA economist Kristina Clifton said.

“However it is likely to take a number of months before the full impact of these changes can be assessed.”

The Australian Prudential Regulation Authority capped interest-only mortgage lending on March 31, telling lenders to limit higher risk interest-only loans to 30 per cent of new residential mortgages.

That set off a fresh round of rate increases by the major lenders, with banks repricing their loan book to make interest-only and investor loans more expensive.

The decline in April was driven by a 2.3 per cent fall in the value of loans for investment housing, while the value of loans approved for owner-occupied housing fell 1.1 per cent.

JP Morgan economist Henry St John said it was still too early to assess the efficacy of macro-prudential policy, but noted that lenders have continued to tighten rates in recent weeks.

“Moreover, there is evidence the Sydney and Melbourne property markets are cooling, which supports the view that these revamped macro-prudential measures are having the desired effect,” he said in a note.

On Friday, ANZ announced it is raising variable rates on its interest-only mortgages by another 0.3 percentage points.

The lender further increased incentives to shift away from interest-only mortgages by announcing it will cut variable rates on principal and interest home loans by 0.05 percentage points and scrap fees for switching.

The Reserve Bank of Australia this week kept the cash rate at 1.50 per cent despite weak economic growth, because of fears of further fuelling risks in the Sydney and Melbourne housing markets.

Economists expect further slowing in the investor segment in coming months and a broad cooling in the housing market.