Housing loan commitments continue to fall sharply but still much higher than pre-pandemic levels

Key takeaways

The value of new home loans being approved has plummeted by $2.26 billion in a month, according to the ABS.

The number of owner-occupier first home buyer loans took a dive in September, dropping by 8.3 per cent, after seeing a 10.4 per cent gain the month before.

Housing loan commitments fell -8.2% month on month in September, its fourth consecutive month of decline.

Despite the sharp falls,the level of housing loan commitments is still 32.8% higher than pre-pandemic February 2020 levels, though have fallen -24.3% from its January 2022 peak.

Owner-occupier loan commitments fell -9.3% month on month and investors fell -6.0% month on month.

First-home buyer loan activity has also fallen sharply over the past year (-26.0% year on year).

Loans for new construction also fell -12.4% month on month and -12.9% year on year.

The value of new home loans being approved has plummeted by $2.26 billion in a month, according to the ABS.

In September $25.14 billion worth of home loans were approved, down 8.2 per cent from the month before in seasonally adjusted terms – the lowest value since November 2020.

Owner-occupier lending took the biggest hit, with a 9.3 per cent drop from the previous month, while investor lending fell by 6 per cent, compared to August.

Despite the sharp falls to date, the level of housing loan commitments is still 32.8% higher than pre-pandemic February 2020 levels, though have fallen -24.3% from its January 2022 peak.

Largest 3-month annualised fall in the history of the series

According to NAB's Head of Market Economics, Mr Tapas Strickland, "housing loan commitments are falling sharply and are likely to continue to turn lower as deteriorating housing market sentiment and higher rates bite borrowing capacity and housing demand."

He commented further:

"Our prior research on this topic highlighted that using fixed rates, there has been a 32% fall in potential borrowing capacity using fixed rates."

Owner-occupier loan commitments fell -9.3% month on month and investors fell -6.0% month on month.

On an annual basis, the slowdown in loan approvals has been slightly larger on the owner-occupier side (-19.9% year on year) than on the investor side ( 15.3% year on year).

First home buyers despite showing greater interest in the market in August have tapered back in September with the value of new lending to this buyer group falling by 6.8% to $4.05 billion while number of first home buyers was down by 8.3% with only 8,485 new buyers in market.

Loans for new construction also fell -12.4% month on month and -12.9% year on year.

What's ahead?

Digging into these figures, the implied average value of a loan commitment for an existing dwelling has fallen -6.1% from its peak, broadly in line with the 6.0% fall in dwelling prices since their peak in October.

And, not surprisingly, the number of borrowers fixing their home loans has dropped dramatically since early this year, when fixed-rate loans were much much cheaper

Despite interest rates, banks, hungry for new business, and many borrowers are refinancing, with many switching banks.

We can expect refinance to increase in coming months, as fixed rate loans written in the boom of two years ago at rock bottom rates start moving to variable.

A move to the average variable rate will see a doubling of many borrowers’ interest rates .

Mr Strickland said:

"Our analysis of the data suggests in numbers (not values) refinancing activity now comprises 52.2% of loan commitments.

With around 70% of fixed rate loans due to mature by the end of 2023 and the flow of new mortgage activity slowing sharply, the refinancing share of activity is likely to pick up further – during the peak of the pandemic the refinancing share rose to 58%."

Source of charts and commentary- National Australia Bank

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.