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.

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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *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. Rates correct as of . 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."

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