How property finance changed over the last month | Pete Wargent

Finance figures are a good “leading indicator” of what’s ahead for property.

Home buyers and investors organise finance months before they buy a property.

The latest figures show that the value of Housing Finance continued to rise in October both for owner-occupier loans and for investment lending.

But the figures revealed marked variations across the states and by loan purpose.

Let’s take a look in four parts…

1 – Owner-Occupier Loans Flattening

The seasonally adjusted number of owner-occupier loans has hit a plateau and is now threatening to roll over.

The below chart shows that despite talk of a frothy property market, the number of loans written to owner-occupiers has never scaled the same peaks as has been the case in preceding years, despite a significant increase in the Australian population to nearly 23.75 million today.Owner-Occupier Loans Flattening

However, the value of loans written did rise month-on-month.

While both owner-occupier and investment loans increased by another 1 percent in October, the rate of increase over the last 12 months has been heavily skewed towards investment lending, which is drawing the attention of the regulators (APRA).

The value of owner-occupier loans, however, now appears set to flatten.

value of owner-occupier loans

Investment lending now comprises some 41.4 percent of the market as at October 2014, a dramatic shift in this market cycle which needs to be understood by those wanting to buy outperforming property types in outperforming locations.

If owner-occupier refinancing is excluded, more than half of the lending market is now for investment loans, at a monstrous 50.8 percent.

In short an overwhelming bulk of funds flowing into Australia’s property markets are now being directed into investment housing markets, which are typically located in the inner and middle-ring suburbs of Sydney, Melbourne, Brisbane and Perth.

 2 – State Versus State

Furthermore, the increase in lending is not being felt evenly across the states.

The trend in the number of loans written to owner-occupiers in New South Wales and Queensland is very strong and trending upwards, but the chart has now rolled for Victoria.

Western Australia also appears to be flattening, while South Australia has fallen into decline, having never really gotten going in this cycle in the first place.

State Versus State

The rolling annual value of owner-occupier commitments shows a very strong 17 percent increase in New South Wales and a 14 percent increase in Queensland.

Commitments in Victoria are also up by 11 percent.

While it’s hard to see in absolute terms on the chart below, sleepy Tasmania is showing signs of awakening with a 16 percent increase in owner-occupier commitments in rolling annual terms.

State Versus State1

The strongest performing markets in 2015 will be Sydney (again) and now Brisbane finally appears set to come to the party after a troubled half decade.

queensland finance

On the other hand both the number of loans written and the value thereof is in an established 6-7 month downtrend in South Australia despite record low mortgage rates, reflecting the weakness of the state’s economy, labour force and muted consumer confidence.

south australia finance 3 – New Dwellings

Naturally enough most owner-occupiers continue to buy existing dwellings, with a larger proportion of new dwelling stock today being mopped up by offshore investors, this particularly being the case in respect of inner city apartments.

loans b y purpose

While there has been a strong recovery in new dwelling commitments since 2012, the uptrend is weakening considerably.

dwelling commitments

Similarly the value of loans written for new dwellings appears to be peaking out.

new dwellings

4 – Renovations and and Construction Finance

Finally for today, the value of major renovations has remained very flat given how low standard variable (SVR) borrowing rates are.

New South Wales is in a decent uptrend for “Alterations and Additions” and there are signs of life in Queensland and Victoria, but disappointingly there is once again no worthwhile net contribution to Q4 GDP to be found here.

Discouraging data which is driven partly by generational shifts towards apartment dwelling in our opinion.


Significantly brighter news in terms of the value of loans written for the purposes of construction, with a strong increase continuing through this cycle.

construction loans

The Wrap

The economy in New South Wales is robust, with strong labour markets, construction and population growth leaving Sydney set for another solid year in 2015.

The other mover for 2015-17 looks set to be Brisbane.

With the honourable exception of Hobart, elsewhere markets appear to have hit a dispiriting plateau.

There could yet be a second wind for some other state markets due to likely interest rate cuts early in 2015, but by that time remaining market momentum may easily have faded.



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Pete Wargent


Pete is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog

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