ANZ leads surprising housing loan surge despite rising interest rates

ANZ is winning big volumes of mortgage business with cashback offers, as its three major rivals focus on profit and temper their competitive drive.

Australian consumers might be feeling the pain of 12 interest rate increases but home property buyers are still driving surprising credit growth for the banks, with ANZ winning big volumes as others temper their competition drive.

New housing loan commitments jumped by nearly 5 per cent in May to $24.9bn, its highest monthly level since October and well above the consensus forecast growth of 1.4 per cent, according to the latest figures from the Australian Bureau of Statistics.

New investor loan commitments rose 6.2 per cent to $8.5bn and new owner-occupier loan commitments rose 4 per cent to $16.4bn, said ABS head of finance statistics Mish Tan.

The financing jump came as house prices in Australia rose for the fourth consecutive month in June, to be 3.4 per cent higher than in February, according to CoreLogic. That is 6 per cent from the peak in April last year.

“With housing prices going up you expect housing finance to go up,” AMP chief economist Shane Oliver said. “The question is whether this is sustainable or not.”

“If interest rates keep rising. impacting the economy and pushing unemployment higher, that would potentially push demand for property back down again and push housing finance down with it.”

The unexpected rebound in the property sector could tip the Reserve Bank into hiking rates for a thirteenth time at its Tuesday board meeting.

Mortgage growth in May also comes despite the prudential regulator still requiring banks to calculate lending eligibility with a hypothetical interest rate 3 percentage points above the loan’s actual interest charge.

“That’s quite surprising, given the amount that a typical borrower can borrow has collapsed and yet they’re still managing to get loans,” Dr Oliver said.

The capacity to pay for a home for someone with average full time earnings with a 20 per cent deposit has fallen by almost a third as the Reserve Bank has lifted rates to 4.1 per cent, from near zero in April 2022.

“It needs to be seen in the context of a very large fall in finance since the highs of early last year, so at the moment it’s just a flick of the bottom.”

But Dr Oliver said the fundamentals of the property market, driven by shortages and extremely low vacancy rates, was likely to be driving investor appetite.

“A shortage of property is offsetting the negative impact of rising interest rates,” he said.

ANZ had the strongest growth of the majors in both the owner-occupier and investor segments in May, growing housing loans at an annualised rate of 10 per cent, according to Morgan Stanley.

The Melbourne-based lender has been growing its mortgage book above system since September 2022, regaining market share it lost during a slump in the aftermath of the pandemic in 2021.

The growth in May was about 1.7 times faster than the system, which helped it capture 23 per cent of net mortgage flow in May, according to UBS.

“ANZ has been more competitive with their pricing, and has been pretty aggressive with their cashback offers,” Evans & Partners banking analyst Azib Khan said.

CBA, NAB and Westpac have all announced the end of their cash back offers for refinancings, as they focus on mortgage profitability rather than growing volumes. They grew loans at 5, 4 and 4.5 per cent, respectively, according to UBS analysis.

“With cashback offers being largely removed, banks‘ mortgage profitability has improved. We estimate banks are currently writing new business above their cost of capital, after a period of intense competition which drove pricing below banks’ required rate of return,” Macquarie analysts told clients in a note.

ANZ, however, has been the exception and continues to offer $4,000 to new customers that refinance loans of $250,000 or more, where the loan to value ratio is 80 per cent or less.

The bank has also invested in speeding up its systems to avoid the approval bottlenecks that hindered its volumes in 2021.