Mortgage growth remains at record lows as non-banks lose market share: RBA

Mortgages lending remained at record lows over December while the major banks increased their market dominance over non-bank lenders, according to the latest RBA figures.

Housing credit advanced by banks and non-banks increased by 0.3% over December, following an increase of 0.4% over November.

Over the year to December, housing credit rose by 4.5% the slowest annual pace of mortgage lending growth for RBA data going back to 1976.

The slow growth suggests it’s not just a case of borrowers paying down their mortgages and other debts but that banks and non-banks are reluctant to lend.

“If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive,” says Savanth Sebastian, economist at CommSec.

Sebastian says little growth in property prices is one of the factors holding back borrowers from taking on fresh debt.

"The main factor underpinning the conservative approach to lending is weak growth in asset prices, especially property. Clearly you are likely to be less willing to take on a large debt load if the price in the underlying asset is barely growing, or in some cases, going backwards," Sebastian says.

Total credit provided to the private sector by financial intermediaries rose by 0.4% over December 2012, after remaining unchanged over November. Over the year to December, total credit rose by 3.6%.

Other personal credit (credit cards, personal loans) increased by 0.2% over December to be up just 0.3% over 2012 while business credit increased by 0.7% over December to be up 2.8% for the year.

Commonwealth Bank economist Diana Mousina said the figures indicate household borrowing restraint, low business appetite for debt; and deposit growth stronger than credit growth.

“The trend of sluggish credit growth reflects competing factors. Household and business balance sheets are in relatively good health and the household savings ratio is around 11%. Under normal circumstances strong balance sheets and low interest rates create a favourable environment for credit growth. However, business and consumer sentiment are subdued due to uncertainty about the outlook. This acts as a drag on credit growth,” she says.

The figures also show that non-bank lenders continue to lose ground to the banking sector.

Banks added $9.4 billion to their collective mortgage books over December, which now stand at $1, 771.5 billion ($1.77 trillion) while non-bank loan books shrunk by $2.8 billion to $151.3 billion.

Proportionally, banks have 92% of the lending market and non-banks 8%.