Through the roof: home lending hits new highs

The mortgage market has broken even more records today, with the value of new home lending hitting an all-time high.

Latest figures from the ABS show the value of new home lending hit $28.75 billion in January, up 44 per cent, year-on-year, in seasonally-adjusted terms.

The total value of owner-occupier home loans settled in January was $22.11 billion – also a record high – up 52 per cent, year-on-year. 

Value of new home loans approved in January*

First home buyers – number of new owner-occupier loans approved in January*

Construction of dwellings – value of new owner-occupier loans approved in January*

What’s driving the property market boom:

• Record-low mortgage rates.
• Changes to serviceability (in 2019 banks used to make sure applicants could still pay their loan at rates of 7%. Now banks must test home loans at 2.5% above current interest rates).
• Government schemes including the First Home Loan Deposit Scheme and the Home Builder Grant.
• Fear of missing out (FOMO).

Sally Tindall, research director at RateCity.com.au said, ultra-low rates were boosting the property market. 

“Record low rates have significantly boosted the amount people can borrow. That means people are putting their hands up at auctions for properties they previously might not have been able to afford,” she said.

“Government incentives are also driving sales, along with a fear of missing out, particularly among those yet to get a foot on the property ladder.”

The latest ABS figures show the number of first home buyers has increased 70 per cent from the same time last year. 

“While it’s great to see first home buyers finally get the keys to their new home, when bidding at auction people need to be careful about how much debt they take on,” she said.

“It’s crazy to think the government is still pushing ahead with the scaling back of responsible lending obligations at a time when the property market is going through the roof.

“With house prices expected to rise this year, and pressure on buyers to overcommit themselves in fear of missing out, responsible lending laws are now more important than ever,” she said.

Tips for homebuyers:

• Start small: If you’re starting out don’t expect to buy your dream home straight away, buy something you can afford and possibly improve.
• Set a price limit: don’t rely on the bank to tell you what you can afford to borrow.  Think about how much debt you’re comfortable taking on. 
• Avoid mortgage stress: Mortgage stress is considered to be when low-and medium-income households are spending more than 30% of their pre-tax income on housing costs.
• Keep a rainy-day fund: Pipes can crack, hot water systems can blow, so make sure you have a rainy-day fund ready to pay for unexpected costs associated with your new property.

*Source: ABS Lending Indicators Jan 2021, released 1 Mar 2021, value of new homes data excludes refinancing, seasonally adjusted data. Monthly change is Dec 2020 to Jan 2021, and annual change is Jan 2020 to Jan 2021.

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