Investors are deserting the property market

Credit: Mark Robinson

New figures from mortgage broker Australian Finance Group Ltd (ASX: AFG) show that investors are continuing to leave the property market en masse.

In a report released yesterday, AFG says investor lending has fallen from 40% of total loans processed in early 2015 to just 31% in the December 2015 quarter. It’s the lowest level in six years, since October 2009 according to AFG.

Despite the fall, though, AFG says it still saw 7% growth in the total number of home loans processed by the company in the December quarter compared to the previous year.

New requirements set down by the banking regulator to restrict investor lending growth to 10%, saw the major banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) increase interest rates for investor mortgages, as well as increasing the amount of deposit required – lowering the loan-to-valuation (LVR) ratio.

Interestingly, the moves by the big four banks have seen a big fall in the percentage of people refinancing their loans with ANZ, CBA, NAB and Westpac. Just 61.3% of refinanced loans went to the majors, compared to over 70% in 2013. That indicates that at least some property buyers have realised that the big four charge much higher mortgage interest rates than many of their smaller competitors. That could also be a red flag indicating a fall in the majors’ earnings this financial year.

Whether the falling trend in investor lending continues in 2016 is another question, but with house prices, particularly in Sydney and Melbourne, coming off the boil, lending growth is expected to slow.

That has prompted some analysts to suggest property investment is now “riskier than the share market“.

Foolish takeaway

House prices look set to fall in 2016, with a number of factors providing headwinds for the industry.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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