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.

Housing finance commitments for refinances have gone absolutely gang-busters over the past few months as people scramble for a better deal or look at ways to keep their homes pic.twitter.com/wyKQ1KeJuM

— Cameron Kusher (@cmkusher) July 9, 2020

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.

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."

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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 2020. 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 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
• If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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, Performance Drive 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.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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