The recent market slowdown, as a result of rising rates and new government tax reforms, has seen lending numbers fall, with the shift in momentum expected to continue into the future.
New data showed that overall lending has fallen in the last quarter, with investor lending volumes declining more than five per cent amid rising rates and government reforms.
According to Australian Bureau of Statistics (ABS) data, investor lending in the March quarter was 5.3 per cent lower, while the value of loans also fell by 3.0 per cent.
Overall, housing loan commitments decreased by 6.2 per cent, while the total loan value dropped by 3.8 per cent.
According to Cotality’s Head of Research, Gerard Burg, a number of factors have contributed to the slowdown in housing demand.
He said measures of housing affordability and mortgage serviceability were already stretched last year, before the Reserve Bank of Australia started lifting interest rates.
“Consumer confidence surveys also plunged on the back of rising energy prices as the Iran war commenced in late February, with low confidence often acting as a deterrence to a high value purchase, such as real estate,” he said.
Owner-occupiers lead lending slowdown
Despite the decline in investor lending, Burg noted that owner-occupiers led the overall retreat, slowing more significantly than investors.
The quarterly volume of owner-occupier loans fell by 6.9 per cent, while the value of loans dropped by 4.3 per cent.
According to Burg, this meant the investor share of total lending rose in March, surging to a record high of 41.0 per cent since September 2019.
“In value terms, the investor share was 40.3 per cent, its highest level since December 2016, a period just prior to APRA placing a limit on interest only lending,” he said.
The data also showed the first home buyer (FHB) cohort saw a smaller fall in the volume of lending in the March quarter than owner-occupiers, but the trend was reversed in value terms.
The average new loan size for FHBs fell around 2.6 per cent, compared with a 1.6 per cent increase for other owner-occupiers.
“In part, this relative resilience in FHB lending may have been supported by the 5 per cent Deposit Scheme,” Burg said.
NSW leads decline in investor lending
When it came to the individual states, Burg noted there was considerable variation in trends across each cohort, with NSW leading the overall decline in volume of investor lending.
On the other hand, NSW had the largest share of investor lending in March, at 43.9 per cent, followed by Western Australia.
Contrastingly, investor lending in South Australia and Tasmania increased in March, with the volume of investor loans in Tasmania rising by almost 74 per cent over the same period last year.
Burg said he expected the removal of negative gearing in this year’s federal budget to continue having a negative impact on investor demand, and by extension, new investor loans.
“Wile some new investors may be drawn to purchase newly constructed properties, they have historically favoured existing dwellings and may now look to other (non - property)
assets instead,” he said.
“With rental yields well below the cost of borrowing, fewer investors into existing properties would be able to generate a positive cashflow, meaning that the costs of holding these,” Burg concluded.
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