Home buyers leave the market as lending plunges 11.6%

author-avatar By on July 09, 2020
Home buyers leave the market as lending plunges 11.6%

Photo by Karolina Grabowska from Pexels

The value of new loan commitments for housing plunged 11.6% in May - the largest fall in the history of the data series.

The latest figures from the Australian Bureau of Statistics (ABS) shows the value of new loan commitments for housing dropped off a cliff in May, down 11.6%, seasonally adjusted.

This was materially worse than market expectations of a 5.5% month-on-month fall, and follows a 4.8% fall in April. 

ABS Chief Economist Bruce Hockman said this was the largest fall in the history of the series, driven by strong falls in the value of loan commitments for housing in New South Wales and Victoria.

While the value of new loans plunged, Mr Hockman said refinancing is booming.

“While reduced transactions in the housing market stifled new loan activity in May, the value of existing owner-occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers”, Mr Hockman said.

The value of new loan commitments for owner-occupier housing fell 10.2% while investor housing fell 15.6%.

The number of owner-occupier first home buyer loan commitments meanwhile fell 9.3%.

Meanwhile, the value of new loan commitments for fixed-term personal finance rose 14.5% in May, seasonally adjusted, following a 24.8% fall in April.

“The rise in the value of new loan commitments for fixed-term personal finance was driven by a partial rebound in the value of new loan commitments for road vehicles”, Mr Hockman said.

Buying a home or looking to refinance? The table below features home loans with some of the lowest fixed interest rates on the market for owner-occupiers.

Provider
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayment
 
Fixed 2 Years 70% LVR
2.19% 2.56% $1,517 Go to site
2.59% 2.55% $1,599 Go to site
Budget Home Loan OO P&I
2.68% 2.74% $1,618 Go to site

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 03 August 2020. View disclaimer.

Westpac senior economist Matthew Hassan said the COVID shock has finally had its full impact on housing finance data.

"These figures are showing a lagged impact from the April lockdown rather than anything relating to the subsequent reopening... the ABS reported that COVID had an uneven impact on loan approvals in the month – contributing to sharp falls in housing loans but a notable rise in refi activity and fixed loans for personal finance," Mr Hassan said. 

"Notably, the latter has much shorter lags between application and approval and recorded a sharper drop in April, hence the May gain may give some indication of how the reopening will translate to housing loans in the month ahead.

"That said, there is clearly a lot going on in the finance data which, given the lags involved as well, are not a particularly helpful guide to housing market conditions. With Melbourne entering lockdown, weekly auction results, price updates and homebuyer sentiment will instead be the main metrics to keep a close eye on."


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

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