In January, Australians reduced their uptake of home loans due to a combination of factors. It includes high-interest rates, inflation, and increased Commonwealth taxes. These factors impacted household budgets. According to the Australian Bureau of Statistics, new home loan commitments decreased by 3.9 per cent in January. The decline was primarily driven by a 4.6 per cent drop in loans purchased by owner-occupiers. Loans taken out by investors fell by a more modest 2.6 per cent.
Rate Hikes Squeezes Borrowing Power
New home loan commitments in Australia fell by 4.1% in December 2023 to $26.3 billion, according to the Australian Bureau of Statistics. This was the first decline since August 2023. It was mainly driven by a 5.6% drop in owner-occupier lending.
The fall in new home loan commitments coincided with a series of interest rate hikes by the Reserve Bank of Australia. They raised the cash rate from 3.75% in November 2023 to 4.35% in February 2024. These rate increases have made borrowing more expensive and reduced the affordability of housing for many potential buyers.
Despite the lower lending activity in December, the value of new home loan commitments was still 11.7% higher than a year ago. It reflects the strong demand for housing in the aftermath of the COVID-19 pandemic. Investor lending, in particular, was 20.4% higher than a year ago. Investors sought to take advantage of the rising property prices and rental yields.
In January 2024, new home loan commitments rebounded by 3.2% to $27.1 billion. Statistics are according to the Commonwealth Bank of Australia. This was mainly due to a 4.5% increase in owner-occupier lending, as borrowers financed high mortgage deposits and sought to lock in variable-rate loans before further rate rises.
However, no new fixed-rate home loan commitments were signed in January. Borrowers avoided being saddled with high-interest payments for years to come. The cash rate, as of February, currently sits at its current peak of 4.35%. The Reserve Bank has signalled that it may raise it again in March to contain inflationary pressures.
Value of new loan commitments
The outlook for the housing market and lending activity remains uncertain. As the impact of the rate hikes and the Omicron variant of COVID-19 on the economy and consumer confidence is yet to be fully seen. Some analysts expect the housing market to cool down in 2024. Affordability constraints and tighter lending standards weigh on demand. Others, however, predict that the housing market will remain resilient, as supply shortages and population growth support prices.
“The recent improvements to loan processing times have led to an increase in the number of loans processed in peak periods this year compared to prior years. This is according to our liaison with lenders,” said Mish Tan, the Bureau’s head of finance statistics. Since the Reserve Bank started raising rates in May 2022, Australians’ borrowing capacity has significantly reduced.
For instance, a family with two children and a household income of $150,000 can now borrow 32.8 percent less, equivalent to $247,600, while the cost of servicing an average mortgage has risen by over $1500. In addition, residential refinanced mortgages have continued to decline, dropping by 7.6 percent last month. As borrowers transition away from ultra-cheap fixed-rate loans, many have sought to refinance their debts with banks offering competitive rates to retain existing customers and attract new ones.
However, the rush to refinance has significantly slowed since its peak in July, coinciding with Australia passing the peak of fixed-rate expiries. Residential refinance mortgages for owner-occupiers have dropped by 30.8 percent compared to a year ago, according to the Bureau. “The volume of loans refinanced was notably higher than new loans in the first half of 2023, but has since declined sharply due to lenders reducing competitive cashback offers,” Dr. Tan added.
Conclusion
The decrease in new home loan commitments coincides with separate data released earlier this week, indicating that Australians remain aspirational and increasingly confident about owning their own homes. The latest Westpac Home Ownership Report, published on Wednesday, revealed that 44 percent of Australians plan to purchase a new home in the next five years, a 9 percentage point increase since July 2023.
The research also found that more Australians are planning to buy an investment property, upsize their current home, or renovate their existing dwelling.
READ MORE:
Home Loan Commitments January 2024 – Lending Indicators
Home Loan Statistics December 2023- Lending Indicators
