New home loans up in housing revival

New home loans approved by banks and other lenders jumped 28 per cent to $79 billion in the June quarter, as the recovery in the housing market gathered pace.

Official figures released on Tuesday said Australian lenders' total exposure to residential property loans held by households was $1.13 trillion, an amount that has increased by 7.3 per cent in the year to June.

New lending, however, is expanding much more quickly than the banking sector's total exposure to property, because borrowers are using low interest rates to repay their debts faster, taking older loans off banks' books.

The Australian Prudential Regulation Authority said lenders approved $79 billion in new loans in the June quarter, 28 per cent more than they approved in the previous March quarter and 20 per cent more than a year earlier.

The fastest growing category of property lending was to investors, with the value of investment loan approvals surging 35 per cent to $27.8 billion in the quarter.

Loan approvals for owner-occupiers also grew strongly, jumping 25 per cent to $51.2 billion in the quarter, during which the Reserve Bank lowered the cash rate by 0.25 percentage points.

The jump comes as auction clearance rates in Sydney hover near record highs, reigniting debate about the risk of a bubble in Australian property led by speculative investors.

JPMorgan economist Tom Kennedy said lending was likely to continue flowing into property investment as the housing market recovered further.

"We've got rising house prices and falling interest rates - both of those things are quite attractive for investors. They can get better returns and they can service the debt more cheaply," he said.

The low returns from bank deposits - which can be lower than inflation once tax is taken into account - are also tipped to drive more investors into housing.

Despite the strong growth in new lending, the numbers suggest banks remain conservative in their credit standards. The share of new housing approvals that are "low-doc" loans has fallen to 0.7 per cent in the quarter, compared with 1.1 per cent a year earlier.

The percentage of new mortgages where the loan is worth more than 90 per cent of the property value has also fallen slightly in the past year, from 14.4 per cent to 13.4 per cent.

The APRA figures also showed banks' exposure to commercial property has increased by 2.5 per cent in the past year to $213 billion.