Housing credit angst

The drive time media is full of hue and cry tonight. According to RBA financial aggregate statistics released today, credit for housing grew 2.1 per cent in March and 23.9 per cent annually.

Initial media reaction on radio said that result defied predictions and accordingly put fresh upward pressure on interest rates. The AFR online ran this article which summarises the argument quite well.

The bank’s governor Ian Macfarlane said recently that the slowdown in housing finance in recent months of about 20 per cent had still not been sufficient to bring the growth in lending back down to sustainable levels.

So what levels of lending growth are sustainable? I haven’t looked to Ian Macfarlane’s other comments on this issue.

Let me throw a a handful of flies in the ointment.

The Australian economy is apparantly going like gangbusters and employment rates are high. The stockmarket is alse offering good returns to investors. The deal flow across my desk looking for investors has increased and improved over the last 12 months.

But small business in Australia has no access to significant credit that is not backed by house lending. You can’t get a decent overdraft without offering some bricks and mortar.

I believe some Franshisees are able to get funding backed on the business alone, but I don’t know what hoops they must jomp through or ratios they must abide by.

So how does the RBA classify mortgages that are used for business and investment purposes but structured as a residential real estate loan? Especially if the borrower chooses to retain Consumer Credit Act protections by not signing those rights away through declaring the loan for business purposes.

So small businesses basically borrow against their homes and investment property to grow their businesses or extend their investments. Yet the banking system abandones them to housing credit. Those investments contribute to credit growth yet create upward pressure on rates.

Nasty trap that.

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