Higher interest rates impact home lending as business credit grows
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New data from the Reserve Bank of Australia (RBA) shows that higher interest rates are affecting home lending, while business credit is experiencing stronger growth.
Simon Arraj, founder and director of private credit investment manager Vado Private, noted that growth in business credit is outpacing housing credit.
The Consumer Price Index (CPI) rose 1.0% in the June 2024 quarter and 3.8% annually, up from 3.6% in the March quarter, according to the Australian Bureau of Statistics (ABS).
RBA data reveals that seasonally adjusted growth in housing credit increased by 4.7% in June compared to the previous year, while personal credit grew by just 2.8%.
In contrast, business credit saw a more robust growth of 7.8% over the year to June 30.
Arraj said, “With housing being the biggest contributor to annual inflation, we are still seeing sticky inflation. Rental price inflation rose 7.3% and remains higher due to very low vacancies in capital cities and constrained supply.”
He added, “Despite higher interest rates, the demand for business credit remains strong.”
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Arraj highlighted the potential of private credit investments, stating, “Private credit investments can deliver investors yields of around 10% per annum, which is more than double the typical yields on one or three-year term deposits.”
The rise in inflation was primarily driven by increasing housing costs, with new dwelling price inflation at 5.1% keeping property prices elevated.
Arraj emphasized the importance of diversification for investors, suggesting that retail investors and SMSFs could benefit from greater allocations to private credit investments.
He noted that several large Australian superannuation funds have already diversified into private debt markets due to the attractive returns on offer.
The data suggests a shifting landscape in Australian lending, with business credit growth outpacing housing credit amid rising interest rates and inflationary pressures.