Housing loan approvals rising to 1.6% – how does this affect owner-occupiers?

Key takeaways

New housing loan approvals rose 1.6% month on month in March, after being -3.5% in February.

The result was a little stronger than the consensus with strength driven by investors (+2.9% month on month) with investor share of approvals back to long term averages, while owner-occupiers (+0.9%) grew by less.

Despite the rise, it is clear momentum in the housing market is starting to turn with the annual rate of growth now negative for owner-occupiers at -2.2%, with recent growth coming from investors (+48.4% year on year).

Higher fixed rates are starting to bite with the fixed-rate share of new loan approvals falling to 21.6% from its recent peak of 46% in July 2021; prior to the pandemic, the fixed-rate share was around 13%.

The latest ABS figures show housing finance approvals rose in March by 1.6% month on month, after being -3.5% in February. 

However, this was almost certainly the peak of the lending cycle and it’s likely that loan approvals will fall moving forward.

Clearly, investors are back in the market, but new loans to owner-occupiers and upgraders have declined.

The rise in investor lending is good news given the severe shortage of rental properties which was exacerbated by many investors selling up through the pandemic

Owner-occupier approvals were relatively flat

Owner-occupier loan approvals were relatively flat at +0.9% month on month.

Strength was driven by first home buyers (+5.9% month on month), but excluding first home buyers, owner-occupier approvals fell (-0.5%).

With investor approvals (+2.9% month on month) rising by more, the investor share of approvals rose to 35.2%, to be broadly back to its long-run average of 36% for the first time since September 2018.

The fall in the annual growth rate of owner-occupier approvals to -2.2% is the most important aspect of today’s report with owner-occupier approvals broadly flat in level terms since January 2021.

That adds to the mounting evidence of slowing momentum in the housing market, a point reinforced by house price data for Sydney and Melbourne over the past few months.

Rise of fixed rates reduces theoretical borrowing capacity

It is likely higher fixed rates are starting to bite with fixed rates having increased by 220bps since their low point in April 2021 to be at 4.34% according to RBA data.

It is noted that the rise in fixed rates reduces theoretical borrowing capacity by 22% in a simple credit foncier model.

Under NAB’s cash rate assumption and assuming pass through to mortgage rates theoretical borrowing power falls by less, by around 13% by the end of 2024.

An even steeper fall in borrowing capacity would occur under market pricing.

There is also a pivot from fixed to variable with the fixed-rate share of new lending falling to 21.6% from its peak of 46% back in July 2021.

Prior to the pandemic, the fixed-rate share was around 15%, meaning a further pivot away from fixed-rate loans is likely.

As for loans for new construction, there was a modest -0.5% month on month fall, suggesting little abatement to the downward trend seen in building approvals to date with the year on year rate firmly negative at -38.6%.

At a national level, the average loan size for owner-occupied dwellings (which includes construction and the purchase of new and existing dwellings) rose 1.2% to $600k, with NSW at $762k and VIC at $630k.

Editor's note: Source of charts, data and some commentary- NAB

About Michael Yardney Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.