Credit growth hits lowest point in 10 years

Credit growth hits lowest point in 10 years

Photo by Matthew Henry on Unsplash

Annual credit growth in Australia has hit a near-decade low, according to the latest Reserve Bank (RBA) data.

Lending to households and businesses grew by 2.3% in the year to November 2019, while it grew by 0.1% over the past month. 

According to the RBA's data, that 2.3% growth rate is the smallest since April 2010 (2.2%), and should boost the chances of another RBA rate cut occurring early next year after last week's positive unemployment figures.

This is the 13th consecutive month that credit growth has fallen - a lack of credit growth essentially means people aren't taking out loans for houses. 

Indeed, housing credit grew by just 0.2% for the month and 2.9% over the year. 

House prices have surged recently, particularly in Sydney and Melbourne, pushing annual housing growth into the positives for the first time since April 2018, following solid declines from 2017's peak. 

However housing credit is a function of both house prices and the volume of properties on the market and being sold.

This is why we're seeing these weak credit growth numbers.

Credit for purchases other than housing (personal credit) such as car loans or personal loans fell by 0.5% month-to-month and by a significant 4.9% year-on-year, while lending to businesses rose by 0.3% and 4.4% respectively. 

Investor numbers fleeting 

Much of the downturn in housing credit growth appears to be somewhat driven by investors. 

In November 2018 investor credit growth was in excess of 1.1% annually, and even managed to hit more than 10% back in 2015. 

But November 2019's annual investor credit growth figure was -0.3%, a negative number for the fourth time in the last six months. 

The table below displays a selection of variable-rate  investment home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) investment home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Owner-occupied credit growth hit 0.4% monthly, which is the smallest figure since June, while its annual 4.7% growth is the lowest since February 2014. 

Monthly growth  Annual growth 
Owner-occupier loans 0.4% 4.7%
Investor loans -0.1% -0.3%

With three interest rate cuts occurring in 2019, and at least one more expected to happen in 2020, interest rates are at record lows at the moment and don't look like changing anytime soon. 

The table below displays a selection of variable-rate home loans on offer, featuring a low-rate pick from each of the following three categories: the big four banks, the top 10 customer-owned banks, and the larger non-banks.

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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