Home loan pre-approvals surge to new heights

Falling property prices haven’t been enough to shake confidence in the market as mortgage pre-approvals skyrocket to an all time high, according to the largest mortgage broker in Australia.

Home loan pre-approvals jumped by 71 per cent from January to August this year, Aussie Home Loans said, at a time when major property markets are shrinking around the country.

August application numbers reached an all time high -- and it did so by doubling the previous record set in 2018, James Symond said, chief executive of Aussie Home Loans. 

"The pent-up demand potentially influenced by lockdowns, lower supply levels, and the savings from the lack of travel and social spending means a portion of the market are ready to act on their property dreams," he said.

“There’s a strong indication that people are giving themselves as much certainty as they can in an uncertain environment – and property seems to be where Australians seek that certainty to ‘bank on’ their future.”

The strong pre-approval numbers could be a sign of life returning to normal, Mr Symond said, as the Spring property season tends to outperform others.

“There’s a good chance that this year will not be any different given the record number of pre-approvals ahead of the spring property season,” he said.

Behind the surge

First home buyers bolstered the surge as they accounted for 53 per cent of all pre-approval applications, Aussie Homes Loans said.

This rise represented a significant increase. Compared to the same period a year earlier, first time buyer applications jumped by 130 per cent.

The rise in first home buyers could correlate with the availability of a government scheme designed to help them enter the market, Mr Symond told RateCity.

"We are receiving record levels of enquiries from first home buyers to help them access the various government initiatives," he said.

"The high level of demand has surprised us during these difficult economic times, but unfortunately the majority of first home buyers are often confused about the eligibility requirements.

"Preparing the schemes’ application and the home loan process can be complex, especially as they come with strict eligibility requirements and conditions, which many first home buyers simply cannot navigate on their own."

The federal government’s first home loan deposit scheme allows newcomers looking to buy a property to secure a mortgage with a deposit of 5 per cent -- and it let’s them do this without having to spend thousands of dollars on lenders mortgage insurance, a requisite for home loans with deposits less than 20 per cent.

Each financial year, about 10,000 places are made available to first home buyers. Applications for this year’s intake opened in July.

Data from the Australian Bureau of Statistics (ABS) also suggests there’s been a rise in first time buyers. 

The statistical body said a strong cohort of first time buyers contributed to the $19 billion in home loan commitments in July -- representing a 9 per cent lift from the previous month to achieve the largest increase in its data series.

A rise in pre-approvals as property values shrink in some cities

Home loan approvals generally went up in the states that have contained the coronavirus pandemic, Aussie Home Loans said. 

“More Australians are coming to terms with the new normal as it impacts their day to day,” Mr Symond said.

“With interest rates at an all-time low and remaining low, there are people out there seeking the right opportunity.”

New South Wales received the highest number of applications, followed by Victoria, Queensland, and South Australia. 

Victoria had a strong presentation of pre-approvals, but the number declined sharply after entering a second lockdown.

Property markets around the country have been going through a period of volatility. Australian property prices fell for three months in a row until July, according to CoreLogic. 

Property value in Melbourne dropped by 1.2 per cent and Sydney dropped by 0.9 per cent in July, according to CoreLogic’s Home Value Index report, with other capital cities experiencing smaller contractions. 

And property prices are expected to fall a little further, before recovering, according to projections from Westpac. 

House and unit prices are expected to fall by 5 per cent next year, the bank’s economists forecast, before overcoming a bumpy recovery to rebound.

“We now expect many capital city markets to be more resilient with a national fall of 5 per cent between April and June next year,” chief economist Bill Evans and senior economist Matthew Hassan said.

“Of most importance is that we are much more optimistic about the pace of price appreciation over the following two years with a total expected increase of around 15 per cent.”

Compare home loans in Australia