Home finance dips

Latest ABS data shows a retreat by first home buyers while residential property investors edge forward

3 August 2021 | Staff Writers

Australian Bureau of Statistics (ABS) data released today shows a significant cooling off in personal and business construction loans while the total value of housing finance commitments slipped back 1.6 percent.

The fall was largely driven by a 7.8 percent decline in first home buyer finance; non-first home buyer owner-occupier finance only fell by 0.3 percent; and investors finance rose by 0.7 percent.

ABS head of Finance and Wealth, Katherine Keenan, says, “The value of new loan commitments for owner-occupier housing fell 2.5 percent in June 2021. While this was the largest fall since May 2020, owner-occupier commitments remained 76 percent higher compared to a year ago and 64 percent higher than pre-COVID levels in February 2020.”

“The largest contribution to the fall in owner-occupier loan commitments was a fall of 17 percent in the value of loan commitments for the construction of new dwellings. In addition to this, there was no growth in lending for the purchase of existing dwellings.”

“The fall in construction lending followed a period of rapid growth between July 2020 to February 2021 in which the value of loan commitments rose by 150 percent.”

Business construction loan approvals fell by 19.6 percent, which the ABS reported is typically a volatile indicator. Commitments for personal loans fell by 12.6 percent.

The value of new housing loan commitments for June 2021 (seasonally adjusted) remained at an historically elevated level of $32.1 billion.

According to AMP Capital Chief Economist, Shane Oliver, “Consistent with the ending of the HomeBuilder subsidy and decline in first home buyer finance, housing finance commitments for the construction of new dwellings fell by 17 percent, although they remain high relative to pre-coronavirus levels.”

In a note to investors, Oliver said: “While it led the charge higher helped by various first home buyer incentives and investors being in retreat on the back of tighter lending standards and weak unit rental markets in Sydney and Melbourne, first home buyer demand appears to have peak as the HomeBuilder incentive has come to an end, demand has been brought forward and worsening affordability is starting to bite.

“Meanwhile investor finance is continuing to rise on the back of low rates and as the worst seems to be over in terms of inner-city unit rental falls in Sydney and Melbourne (although the various lockdowns may disrupt this) and as investors respond to the surge in prices and assume that it will continue.

“The resurgence in investor financing and continuing strength in demand from owner occupiers who are trading up point to further near-term strength in home prices, albeit with various lockdowns potentially slowing demand down a bit in the very short term.

“It also points to a further acceleration in housing debt, a further rise in the share of interest only loans and increasing lending at high loan to valuation ratios. All of which will maintain pressure on the RBA and APRA to move to tighten lending standards in order to head off increasing risks of financial instability – albeit they are now likely to wait for the dust to settle from the latest lockdowns before moving.

“While the various lockdowns may threaten demand for new homes, so far there is not much evidence of this and in any case it would be premature to bring something like HomeBuilder back given the big pipeline of work yet to be completed. It will only become an issue if the lockdowns spread and drag on into the December quarter.”

The ABS reported the value of new loan commitments for fixed term personal finance fell 12.6 percent in June 2021 (seasonally adjusted). End of financial year sales for personal road vehicles were weak, resulting in an 11.7 percent fall in lending for road vehicles.