Credit growth hits lowest point in 10 years

author-avatar By on December 23,2019
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.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 

Base criteria of: a $400,000 loan amount, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. The product and rate must be clearly published on the product provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 April 2020. View disclaimer.

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.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 April 2020. View disclaimer.


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 2019. 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 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

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 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.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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