INDUSTRY NEWSNationalReal Estate News

Homebuyers borrow more than ever but the market may be slowing down

The volume of new home loans fell last month, but when buyers do take on a mortgage they’re borrowing more money than ever.

According to the Australia Bureau of Statistics (ABS), the average new owner-occupier mortgage hit $626,055 in May – the highest level on record.

However, the volume of new home loans fell $503 million compared to the previous month, suggesting the market could be about to slow down.

The average new loan size for owner-occupiers hit record highs in Queensland, South Australia and Western Australia.

While NSW still leads the way in terms of the largest average new owner-occupier mortgage at $767,584, this remains below the peak recorded in January 2022 of $803,235.

The average new loan size in Victoria fell this month and remains significantly below the peak recorded in January 2022 of $651,364. Research Director, Sally Tindall, said Australia’s property market continued to rise, dragging the average new loan size along for the ride, despite the rate hikes.

“Over the last two years, buyers have seen their maximum borrowing capacity plummet, in some cases by hundreds of thousands of dollars, as a result of the RBA hikes, and yet the average new loan size has hit a new record high,” Ms Tindall said.

“It’s astounding to think owner-occupiers are, on average, taking out larger loans than ever before despite the fact the cash rate is sitting at a 12-year high.

“Currently, the average new owner-occupier rate is 6.27 per cent – a difficult benchmark to clear. “

Ms Tindall said borrowers were still passing the banks’ stress tests at an average rate of 9.27 per cent.

“The average new loan size for owner-occupiers hit record highs in the states of Queensland, South Australia and Western Australia, where property prices are now at their peak in their respective capital cities, according to CoreLogic data,” she said.

“The average new loan size in NSW, however, is still below the peak recorded in January 2022, despite the fact Sydney property prices have just hit a new record high, as borrowers presumably come to the table with bigger deposits.”

Despite homebuyers still being prepared to borrow, the value of new home loans dropped in May, with $503 million less in mortgages settled compared to the previous month.

However, new lending in May was up 18 per cent compared to the same time a year ago and an incredible 29.5 per cent higher for investors.

Real Estate Institute of Australia (REIA) President, Leanne Pilkington, said the latest figures suggested the market may be slowing down.

“Housing affordability has been a growing concern, with the proportion of family income required to meet loan repayments reaching significant levels,” Ms Pilkington said.

“This has particularly impacted first-home buyers, who already face substantial barriers due to rising property prices and the need for larger deposits.

“The decline in new loan commitments in May 2024 further underscores these challenges.”

A total of $16.18 billion worth of mortgages were refinanced in the month of May – a slight drop from the previous month.

The proportion of new and refinanced loans opting for a fixed rate was just 1.7 per cent in the month of May. 

While this was the fourth lowest level in ABS records, it was a slight rise from the record low documented in the previous month of just 1.2 per cent.

Canstar’s finance expert, Steve Mickebecker, said the recovery in the market is being dominated by investors. 

“First home buyers in particular are finding the going tough in what looks like a repeat of the pre-COVID market,” Mr Mickebecker said.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.