Record 15% of home loans dropped as Australia housing market downturn deepens

Investor lending leads decline

Official figures showed new mortgage loans fell 15% in the September quarter, including a 30.6% drop in lending to investors. Across the year, the number of new loans declined 21.4%, while investor loans fell 38.5%.

The article attributes weaker housing demand to five Reserve Bank interest rate hikes and stagnant real wages. Tax rule reforms for investors have also contributed to reduced demand for existing properties.

The annual decline in investor mortgages was driven mainly by a near 46.2% fall in loans for buying existing properties. Investors are particularly sensitive to changes in expected prices and interest rates.

Different effects on buyers

First-home buyer lending fell 8.6% in the September quarter, a more moderate decline than investor lending. Over the year, loans to first-home buyers fell 12.3%, while lending to non-first-home buyers declined 8.7%.

The shift has raised home buyers’ share of total lending by nearly 9%, and the average loan size for first-home buyers has increased by almost 10%. Reduced investor competition and lower prices may improve access for some buyers.

Still, the value of new investor loans remains 1.5 times the value of new loans to first-home buyers. The shift toward owner-occupier lending resembles patterns after tighter investor credit rules were introduced in 2014 and 2016.

Rates, prices and repayments

A comparison in the article considers a theoretical 10% home price fall and six rate rises. For a buyer who waited or could not purchase before prices fell, monthly mortgage costs rise from $3,407 to $3,593, or 5.5%, compared with buying before the fall and rate increases.

The same comparison says mortgage repayments would have risen 17.2% overall. The text does not provide the table’s underlying assumptions or figures beyond those stated.

Lenders and construction

Borrowers must be able to withstand a further 3% rate increase under the serviceability buffer described in the article. The buffer applies to lending from approved deposit-taking institutions, including major banks, and is equivalent to 12 standard rate rises.

As borrowers turn to non-bank lenders, major bank lending fell 7.1% over the year while non-bank lending rose 67.7%, starting from a low base. The article gives La Trobe Financial and Athena Home Loans as examples of non-bank lenders.

Falling prices and borrowing costs also affect new housing construction. The article says construction typically declines after house prices fall, with a lag, reducing demand for materials and tradespeople.