- The value of Australian home loan approvals fell sharply in November, reverting to the trend seen earlier in the year.
- Lending to investors plunged by 4.5% to the lowest level since June 2013. It’s now fallen by over $4 billion from the peak in early 2017.
- Westpac Bank says the acceleration in home price falls late last year likely reflects lower investor lending and a reduction in borrowing capacity due to tighter lending standards.
The value of Australian home loan approvals fell sharply in November, reversing a surprise lift seen one month earlier.
The drop was led by yet another steep fall in the value of investor finance which slumped to fresh multi-year lows.
According to the Australian Bureau of Statistics (ABS), lending fell by 2.5% to $29.129 billion in seasonally adjusted terms.
The value of lending to owner-occupiers fell 1.4% to $19.795 billion. Refinancing of existing facilities fell by a smaller 0.1% to $6.184 billion. Excluding refinancing, lending to this cohort fell by a larger 1.6% to $13.61 billion,.
Having risen by 0.5% in October, lending to investors plunged by a further 4.5% to $9.334 billion, leaving it at the lowest level since June 2013. Over the year, the value of investor lending slumped 23.4%, extending the decline from the record peak struck in January 2017 to 30.2%, or just over $4 billion.
The number of owner-occupier home loans approved slipped by 51,967 after seasonal adjustments, a slightly smaller decline than the 1.5% fall expected.
Loans to purchase existing dwellings fell 1.1% to 43,726 while those to build new dwellings fell by a larger 2% to 5,622. Loans to buy newly-constructed homes bucked the trend, lifting 3.4% to 2,619.
“Despite this slightly better than expected number of owner approvals in the month, weakness is still clear with the approvals ex-refinancing down 10% over the last 12 months,” said Matthew Hassan, Senior Economist at Westpac Bank.
The proportion of owner-occupier loans to first home buyers approved during the month lifted to 18.3%, the highest level since October 2012.
The ABS data does not include data on investor loans.
By average loan size, those issued to first-home buyers slipped to $336,500, the lowest level since March last year. The average for secondary buyers also edged lower to $395,500, off the record high of 412,000 set in May last year.
The decline in average loan size reflects not only that home prices have been falling in many parts of the country over the past year, but also the impact of tighter lending standards, reducing the amount that some prospective buyers may wish to borrow.
“The detail suggests the weakness apparent in dwelling prices late last year relates to the decline in investor loans and reduction in borrowing capacity,” Hassan said.
“Notably, the six months to November saw a 5.8% drop in the value of owner occupier loans but just a 1.5% decline in the number of loans, the difference being the implied average loan size.”
Kristina Clifton, Senior Economist at the Commonwealth Bank, says the continued decline in housing finance points to further weakness in prices ahead.
“The flow of credit is a good leading indicator of changes in dwelling prices in the near term. The fall in approvals over the past year and a half points to further falls in dwelling prices ahead,” she said.
“The falls are likely to be concentrated in Sydney and Melbourne, the two cities where investor activity was the strongest.
“We expect a further 5% drop in Sydney dwelling prices taking the peak to trough decline to 15%. We expect a peak to trough fall in dwelling prices of around 12% in Melbourne.”
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