Investor Credit

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GUEST OBSERVER
The 2015 year was a solid one for credit to the private sector. Credit grew by 6.6% over the year, accelerating from a 5.8% increase in 2014. 
That is the strongest calendar year result since the GFC, with outcomes from 2010 to 2013 of: 3.3%; 3.5%; 3.7% and 3.8%.
Both businesses and households responded to low and falling interest rates. The RBA began to ease policy in November 2011, reducing the cash rate from a peak of 4.75%. The most recent moves were in February and May 2015, lowering the cash rate by 0.5% to 2.0%.
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<img src="/images/2016/01/29/Screen%20Shot%202016-01-29%20at%202.45.05%20PM.png" alt="">
Housing credit growth progressively strengthened from a low of 4.5% in 2012, to 5.4% in 2013, 7.0% in 2014 and then 7.5% in 2015.
Business credit understandably was slower to respond, lifting from 1.7% in 2013, to 4.7% in 2014 and then 6.3% in 2015 as firms looked to take advantage of low rates and with commercial property an area of strength.
In the month of December 2015, total credit expanded by a solid 0.5%, with both housing and business reporting a rise of 0.5%, while personal was flat.
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<img src="/images/2016/01/29/Screen%20Shot%202016-01-29%20at%202.46.12%20PM.png" alt="">
In terms of momentum, the housing sector cooled in the second half of 2015, particularly the Sydney market. While the RBA eased policy in the first half of the year, this was partially reversed in the second half of the year, with the regulator, APRA, in discussions with the banks. Lending standards were tightened and mortgage rates increased, with a focus on the investor market.
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APRA set a threshold for investor housing credit growth of 10%yr. This was met in October and annual growth in investor credit moderated to 8.5% in December, down from a peak of 11.0% mid-year. Note, that there has been some switching, with investor finance declining in the December quarter but finance to owner-occupiers strengthening.
Housing credit in aggregate grew by 0.55% in December, moderating from an average 0.62% over the previous six months. A further modest moderation is likely.
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Business credit grew by 0.5% in December, following a flat November and a 1.1% rise in October. Such volatility is not unusual due to the lumpy nature of transactions.
In the four months to November, business credit grew by 0.9% a month on average, or 11% annualised. This is well in excess of that implied by commercial finance. In part, this reflects the boost from the valuation affect associated with the sharply lower Australian dollar.
Commercial finance, which is also volatile, has rebounded in recent months, notwithstanding sluggish real business investment by the non-mining sectors. That points to positive near-term momentum in business credit.
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<img src="/images/2016/01/29/Screen%20Shot%202016-01-29%20at%202.49.33%20PM.png" alt="">
Andrew Hanlan is senior economist for Westpac and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/andrew-hanlan/3/222/430" target="_blank">here</a>. 
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