Home lending continues to slide as rate hikes take their toll

The value of new home loans being approved dropped for the ninth month in a row, as Australia’s cash rate rises take their toll on the home lending market.

In October, $25.79 billion worth of home loans were approved, down 2.7 per cent from the month before in seasonally adjusted terms – the lowest value since December 2020.

Value of new home loans approved in October

Source: ABS Lending Indicators Oct 2022, released 2 Dec 2022, seasonally adjusted data. Annual change is Oct 2021 to Oct 2022. Excludes refinancing.

First home buyer numbers continue to slide

The number of owner-occupier first home buyer loans dropped again in October, down 3.2 per cent from the previous month and down almost 26 per cent from the same time a year ago.

Owner-occupier first home buyers – October 2022

Source: ABS Lending Indicators Oct 2022, released 2 Dec 2022, seasonally adjusted data.

Refinancing down, but by no means out

The value of externally refinanced loans across both owner-occupiers and investors totalled $17.84 billion in the month of October. While this is the second consecutive drop in the value of refinancing, it still remains at extremely elevated levels.

Total refinancing – October 2022

Source: ABS Lending Indicators October 2022, released 2 Dec 2022, seasonally adjusted data

Source: ABS Lending Indicators Oct 2022, released 2 Dec 2022, seasonally adjusted data.

Borrowers continue to turn their back on fixing

The proportion of new and refinanced lending opting for a fixed rate contract clocked in at just 4 per cent again this month, in dollar terms.

This is dramatically down from the peak last July when 46 per cent of all new and refinanced loans were fixed.

Source RateCity.com.au, ABS Lending Indicators Oct 2022, released 2 Dec 2022

RateCity.com.au research director, Sally Tindall, said: “The market for new home loans is continuing to slide, alongside cooling property prices.”

“Seven consecutive RBA hikes has borrowers spooked, and with another hike coming, potentially as soon as Tuesday, there’s likely to be further drops in lending to come,” she said.

“While many would-be buyers have seen their budgets self-combust at higher rates, others are keeping a keen eye on the drops, hoping for an opportunity to nab a bargain once prices bottom out.

“The drop in property prices means first home buyers no longer need to save as much for their all-important deposit, but they’ll still have to prove to the bank they can pay the mortgage at higher rates.

“Despite the recent rate rises, banks still have to stress test people’s finances to make sure they can afford the mortgage if rates rose a further 3 per cent, which is playing havoc on people’s borrowing capacity now the cash rate is almost at a 10-year high.

“APRA may have to consider dropping this buffer back down to 2.5 per cent in 2023, once it gets a clearer idea of where the cash rate is likely to settle.

“Refinancing might have dropped again this month but it’s still at near record highs, with over $17 billion worth of loans refinanced in just one month.

“While banks are scratching around for brand new borrowers, they’re busy poaching existing ones from their competitors.

“Banks are throwing everything but the kitchen sink at customers willing to move their mortgage on to their books, with rate discounts and cashbacks at the ready to woo new business” she said.

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