Prepare for investor ramp-up, NAB tells brokers

CoreLogic Asia-Pacific research director Tim Lawless declared investors are the fastest growing sector of the market, forecasting a further rise as prices continue growing and rates stay low.

At the same time, with ongoing challenges to housing affordability, first home buyers are a smaller source of demand.

Over the year to August, the value of investor loans across Australia had surged by 92 per cent, compared to an 11 per cent rise in first home buyer loans.

The report noted investment lending had increased by 11.8 per cent over the three months to August, while the value of first home buyer mortgage commitments slumped by 13 per cent. Other owner-occupier commitments rose by a relatively low 2.2 per cent.

“Investors are reaping capital gains and also benefitting from rising rents, with houses performing more strongly than units on both fronts,” Mr Lawless said.

“Housing values are rising at the fastest annual pace since 1989 and the trend is widespread with price increases recorded in both capital city and regional areas around the country.”

NAB has forecast 25 per cent annual house price growth for 2021, with a more moderate 5 per cent rise expected in 2022. Including units, the numbers shift to around 23 per cent in 2021 and 5 per cent in 2022.

Across capital cities, the average is expected to be 22.7 per cent for this year, followed by a 4.9 per cent rise in 2022.

Regional Australia however recorded a higher rate of growth in the year to September, with a 23.1 per cent increase compared to the capital cities’ 19.5 per cent.

Mr Lawless added that while rising prices have placed yields under pressure, investors have been cushioned by increasing rents and the low rate environment.

“Record low interest rates mean yields are still more attractive relative to mortgage rates than historic averages,” he said.

“Ongoing gains in housing values, low mortgage rates, and a wider than normal spread between mortgage rates and rental yields should see investors continue to be a force in the market.”

NSW had seen the strongest investor activity, with the segment’s mortgage commitments comprising 34.2 per cent of all lending (excluding refinancing), while the ACT followed with 33.1 per cent and Queensland with 32 per cent.

Western Australia on the other hand had the lowest proportion of any state, at 21 per cent of demand.

However, investors had become more interested in housing markets outside of NSW and Victoria, which traditionally attracted the most demand.

The report noted the value of investment lending had more than tripled (up 271.9 per cent) over the year to August across the Northern Territory, albeit from a low base.

In Queensland, the value of investment lending had grown by 14.7 per cent and in Tasmania, it was almost double (93.8 per cent higher).

Mr Oster revealed NAB’s internal data had suggested the mid-2021 lockdown had about “half” the impact of the lockdown last year.

“We see strong growth continuing into early 2022, the labour market resuming its prior trajectory, with the participation rate normalising and employment levels rising,” he said.

Further buffer, DTI limits look possible, says NAB report

Looking forward, faster progress towards the Reserve Bank’s inflation targets could potentially bring forward the timing of the pending cash rate rise, from its expected 2024 date towards late 2023. NAB has forecast a mid-2023 rate increase.

APRA’s recent serviceability buffer raise is not expected to bite in the short-term, the report added, although NAB has stated further controls are not out of the picture.

“While it is hard to be sure, it is not impossible that we could see further increases in the buffer and/or the imposition of debt-to-income ratios – with the latter having a much larger potential impact,” the paper said.

Housing credit increased by around 6.2 per cent in the year to September, with NAB forecasting a further 4.6 per cent growth to September 2022.

Phil Waugh, NAB executive for broker distribution, added brokers are in a “prime position to help more property investors build, manage and grow their portfolios”.

“Brokers have a timely opportunity to educate property investor customers, provide guidance and show the value of working with a trusted adviser who can cut through market complexity,” Mr Waugh said.

“We continue to see growth and momentum across the property market. While there have been disruptions over the past few years, the outlook remains positive.”

Home loan approvals in under an hour

The bank has also flagged a new mortgage origination process for all of its channels, including its broker network, to launch in 2022.

NAB has promised faster processing times and less potential for errors and rework with the new process. According to Mr Waugh, the bank’s new “home loan experience” will deliver same-day unconditional approval, as fast as under an hour next year.

“We know brokers also need to feel confident about the whole home lending experience – ideally one that is fast, simple and seamless,” he said.

“As the bank behind the broker, we want to be the most reliable bank for brokers and ensure consistent service across all channels.”

NAB also recently merged its NAB Broker and Advantedge sales teams into one business, Broker Distribution.

[Related: Fewer Australians intending to purchase property: CBA Research]