Lending for property investment continues to cool as APRA's regulatory strong arm tactics on risky lending appear to be taking hold.

Private sector credit figures released by the Reserve Bank show investor lending — while still growing — eased in pace for the fifth consecutive month.

Total housing credit was a touch stronger in May growing 0.6 per cent over the month and 6.6 per cent over the year.

Owner occupier credit just outpaced investor lending in May, up 0.6 per cent — its largest monthly gain in 18 months.

However, on an annualised basis investor lending is still growing at 7.5 per cent, compared to owner-occupier lending's 6.1 per cent growth.

Investor lending may need to cool more

J.P Morgan's Henry St John says at that pace, a further slow down in investor mortgages is still necessary to adhere to APRA's new tougher stance on lending.

"[There is] little room to run higher if banks are to keep investor credit growth 'comfortably below' the 10 per cent speed limit speed limit," he said.

"Given that investor lending is annualising at a 7.9 per cent and 8.3 per cent pace over the last 3 and 6 months respectively, bank lending growth needs to continue to moderate to satisfy APRA's new restrictions."

However, ANZ's Daniel Gradwell argued APRA was on target to deliver its desired result.

"Recent out of cycle mortgage rate increases, especially for interest-only borrowing, is likely to see this slowdown in investor borrowing continue," Mr Gradwell said.

Investors are becoming owner-occupiers

The RBA noted the growing rate differential between investors and owner-occupiers has caused a major shift in the way borrowers are characterising their loans.

"The net value of switching of loan purpose from investor to owner-occupier is estimated to have been $53 billion over the period of July 2015 to May 2017, of which $1.4 billion occurred in May 2017," the RBA reported.

Recently, Macquarie Bank analysts asked why anyone would want interest-only mortgage given they were now around 50 basis points higher than principal and interest mortgages — a difference that adds up to around $12,000 on a $500,000 loan over 10 years.

Business and personal lending remain weak

While housing credit props up overall credit growth, business lending continues to disappoint.

"Business credit continued to expand at a snail's pace in 2017, growing 0.2 per cent month-on-month in May, with the annual growth rate in business credit remaining at 3 per cent, a three-year low," Mr St John said.

"The slowdown in business credit is disappointing given the strength in business survey data since the start of this year.

"Moreover, given the impending rise in electricity prices, a stiff headwind to business margins, the outlook for non-mining business investment into the second half of 2017 appears lacklustre."

Households also show little interest in borrowing, apart from buying property, with personal credit falling for the 18th consecutive month.