Sydney lending soars: CoreLogic

With growth in the Sydney property market now extending to the top end of the market (A$1 million plus), lenders may be concentrating their credit approvals on high value loans in an interesting shift in focus for the banking sector.
 
Activity across CoreLogic RP Data's mortgage platforms for the month of June show that volumes in Sydney remained at their May 2015 levels, but the mix shifted somewhat. Volumes in the $1 million to $1.5 million range and the $1.5 million plus range were each up ten per cent over the previous month, confirming anecdotal market feedback that the top end of the Sydney market is now very active and exhibiting strong growth.
 
Platform volumes in Melbourne were even stronger than the record March numbers, up from 1126 valuations per working day in March to 1178 valuations per working day in June, with all value segments maintaining their strong levels.
 
These trends will help inform the understanding of the Australian Prudential Regulation Authority on bank's adherence to a soft limit on growth of ten per cent a year in residential investment lending, a policy goal spelled out in late 2014.
 
Appearing before the Senate Economics Legislation Committee in Canberra on 3 June, APRA Chair Wayne Byres made the comment that changes to lenders' lending practices (credit policy, pricing and servicing) "will take time to fully flow through."
 
Activity across CoreLogic RP Data's mortgage platforms for the month of June supports the observations made in our June Banking Day article and Byres' observation (expressed in more formal and eloquent terms) that the mortgage market is a big beast and takes time to slow its trajectory and alter course.
 
In June, platform volumes nationwide at 5830 completed valuations per working day effectively remained flat from May volumes of 5817 per day.
 
The June number effectively mirrors the record average daily volumes experienced in March 2015 of 5826 per day.
 
As noted in my June article, valuation activity usually precedes formal loan settlement activity by two to three months.  
 
This suggests that formal housing finance data is expected to remain elevated for at least this period, whilst the 'work in progress' loan approvals work their way through the system, and before the refinements to policy and process lenders are currently in the process of announcing and rolling out take effect.
 
Accordingly, with the official ABS Housing Finance Statistics for the month of May to be released on 10 July, we should expect to see strong numbers reported, given the trends noted above.
 
There is also a seasonality issue at play here.  June is typically a strong month for market volumes as borrowers seek to rearrange their affairs ahead of the end of the financial year.
 
Looking ahead, the first two weeks of July are typically much quieter given this period typically coincides with school holidays across the country. Therefore, we are expecting the last two weeks of July to be the first real window into the 'new normal' of mortgage market volumes post this regulatory and macroeconomic focus on lending practices and loan composition mix.

-- Craig MacKenzie is executive general manager, commercial at CoreLogic Asia (RP Data)