The rise in household lending follows a 2.3% fall in January.
According to ABS Chief Economist Bruce Hockman, household lending still remains subdued.
“Despite the rise in February, the longer term story is largely unchanged with new lending to households remaining subdued and well down on levels seen over the past five years,” Mr Hockman said.
“Lending for owner occupier dwellings in New South Wales is a good example of this broader story, with the series still down over 20% from the peak of lending in August 2017, even after recording an 8.2% monthly rise in lending commitments in February.”
At a national level, the value of lending for owner occupier dwellings rose 3.4% in February.
Lending for investment dwellings recorded a more modest rise of just 0.9%.
The number of loans to owner-occupier first home buyers was up by 1.8% which outpaced the rise in the number of loans made to owner-occupier non-first home buyers (1.6%).
Meanwhile, household personal finance lending, which includes car loans and personal loans, rose by 0.4% after a 1.2% increase in January.
“While this is the first back-to-back increase in lending for personal finance since late 2017, the components of this lending generally linked to household consumption remained relatively weak,” Mr Hockman said.
Westpac senior economist Matthew Hassan said the February update was firmer than expected.
“This was consistent with the improved tone from auction market activity and a slowing in price declines in recent months. Some of the effects of tightening credit conditions may also be dissipating,” Mr Hassan said.
“That said, the signs of improvement are still only tentative. The market may be starting to find a base in terms of finance activity but conditions remain weak overall.”
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