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One of the best proxies for what is happening in the housing market are the figures from Mortgage Broking Giant AFG – which reveal on a quarterly basis the home loan applications moving through the ‘national system’.

The figures show just how the market reacted after APRA tightened the lending restrictions for banks at the end of 2014 by limiting the investment book size growth for all banks to 10% annually.

The banks responded in 2015. To do this – the banks focussed on getting only quality loans – tightening lending criteria for investors; increasing the amount of deposit required and reducing the maximum a customer can borrow as function of income.

That’s great for the banks – but also raises a question about the yield on their lending book – riskier loans attract a premium and there’s always appetite for some of these.
APRA hoped that this would cool the market, and it has to some extent, but of course ecomonomics doesn’t work like that, faced with a choppy sharemarket and an investment future pockmarked by risk, the demand for borrowing has simply found a new route.

The chart above, application volume data from AFG, shows demand has simply surfaced in the the non-bank sector, which has grown at 300% in the past 12 Months and shows no signs of burning less brightly.

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