Rising interest rates curb mortgage growth

As the Reserve Bank prepares to raise interest rates again to rein in the highest inflation in decades, loan growth in the $2 trillion mortgage market shows signs of slowing and the analysts say the slowdown in lending will continue.

New figures from the RBA, released on Monday, showed that growth in mortgage credit – a key long-term influence on bank profits – slowed to a 10-month low of 7.3% on the year to in September, against 7.6% a month earlier.

Mortgage growth is slowing and analysts believe the trend still has a long way to go.Credit:Peter Rae

While the RBA is expected to raise the cash rate by at least 0.25 percentage points on Tuesday, analysts say it is still early in the downturn in mortgage lending, which came as oil prices real estate plummeted and banks reduced the amount they would lend.

Westpac chief economist Andrew Hanlan said the RBA figures further confirmed the slowdown in credit due to higher interest rates, saying overall credit growth of 0.7% in September was the weakest monthly reading since March. Hanlan said while borrowing rose sharply in 2021 and early 2022, that trend is now reversing as interest rates rise.

“The RBA is rapidly removing ultra-loose monetary policy, on the way to a restrictive stance, to combat a significant inflation challenge. Policy tightening will reduce demand for credit – from households and, therefore, businesses,” he said in a note.

“The housing market is showing the adverse effects of the sharp rise in interest rates.”

Some investment houses such as Jarden expect annual housing credit growth to fall to around a third of its current rate by the end of the year, while Commonwealth Bank said it expects housing credit growth to slow to 4% next year.

Despite the expected slowdown, investors remain bullish on big banks as lenders benefit from a dramatic widening in net interest margins, which compare funding costs to the price of loans. Lenders also report low levels of borrower stress.

White Funds Management chief executive Angus Gluskie said over the next year banks would fully benefit from higher interest rates on their loan portfolios and the majority of bank customers could bear it. higher interest rates.

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