Record rebound in home loan borrowing, but investor loans struggle to recover

The rebound from Australia’s first recession in almost 30 years appears to be underway as people spend record amounts on the homes they want to live in, according to the nation’s statistical agency.

The spending spree comes after interest rates were dropped to historic lows due to the coronavirus pandemic, which in turn contributed to property prices dropping for five straight months.

Owner occupier loans hit a record high

Australians looking to buy their own home secured $16.3 billion in owner occupier loans for 12,302 properties in the month of August, the Australian Bureau of Statistics (ABS) said, a 13.6 per cent surge representing the largest increase since records were established 18 years ago.

The posting surpasses the previous record of 10.7 per cent in July, doubling down on a trend indicating an economic recovery is taking place in an otherwise uncertain climate. 

The result defies the expectations of a country that entered a recession when it shrank by 7 per cent in the June quarter, Craig James said, chief economist at CommSec.

“This is not your typical recession … Aussies are embracing housing like never before,” he said.

“Not only have home loans posted record gains in July and August but the value of loans has never been higher.”

But backed up applications mean the snapshot is months behind, Amanda Seneviratne said, head of finance and wealth at the ABS. 

“Lenders are reporting to us that current processing times mean that August commitments reflect customer demand in June and early July,” she said, “prior to Victoria imposing stage 3 and stage 4 restrictions.”

The owner occupier results were a standout figure in the data series -- propped up by first home buyers and an increase in renovations -- and they lifted up the general average. 

Overall loan commitments were up 12.6 per cent, according to the seasonally adjusted data, but they were held back by the underwhelming performance of investor and personal loans.

Investor loans begin to recover, personal loans struggle

The news isn’t good for everyone. Investor loans are undertaking a modest recovery from a low not seen since 2002.

After dropping to $4.1 billion in May, the value of investor loans increased by 9.3 per cent in a month to $5 billion in August.

It wasn’t the only category posting lacklustre results. Personal fixed term loans dropped in value by 12.5 per cent in August to $1.4 billion, mostly due to a fall in people buying new cars. 

New car sales have been on the decline for the last 30 months in a row, but the industry is hailing a government pledge to make securing finance easier as a possible turnaround.

Government incentives drive first home purchases and renovations

First home buyers, some of which likely aided by a $400 million government scheme, accounted for almost a third of owner occupier home approvals, reaching a high last seen immediately after the Global Financial Crisis (GFC). 

About 12,302 home loans were secured by first home buyers in August, an increase of 17.7 compared to the previous month. 

“New loan commitments for owner occupier housing rose in all states and territories, except the Northern Territory,” the ATO’s Ms Seneviratne said. 

“The largest increases in the value of new loan commitments were in Victoria, Queensland and New South Wales.”

The result, accounting for 31 per cent of owner occupier commitments and a decade high, was possibly fueled by the federal government’s first home loan deposit scheme. 

The scheme makes it possible for people to secure a property with a 5 per cent deposit and not have to pay lenders mortgage insurance, a tax typically levied on deposits less than 20 per cent. This is because the government secures the remaining 15 per cent difference.

A recent report found the scheme makes it possible for first home buyers to enter the market four years quicker on average. And the scheme has since been expanded, with a further 10,000 placements being made available for new build properties with increased price caps.

Time to renovate as we social distance

People stuck at home due to social distancing measures and the lure of a government grant for some may have contributed to an increase in loans secured for renovations. 

People spent $784 million renovating their homes in August, an increase of 7 per cent over the previous month. 

The result eclipsed pre-COVID renovations and reached a high not seen since April 2016. 

The federal government is incentivising renovations from $150,000 to $750,000 to residential properties by offering a further $25,000 to eligible applicants under its Homebuilder grant, possibly explaining some of the performance boost.

Data from Suncorp Bank reveals there was an increase in renovation loans over $150,000. Of the loans issued for renovations during the last financial year, 31 per cent were over $150,000 -- a rise of more than 10 per cent compared to the year before.

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