Latest lending figures could be bad news for the rental market

A property expert says a decline in new investor lending could be a sign the rental crisis is set to get worse following the release of the latest ABS lending figures.

Lending figures for December showed home lending activity continued to decline from the record high seen in early 2022.

The value of total new housing loan commitments fell 4.3 per cent to $23.4 billion in December, down from record high levels seen earlier in 2022.

New owner-occupier loan commitments fell 4.2 per cent to $15.6 billion, while new investor loan commitments fell 4.4 per cent to $7.9 billion.

Sean Crick, ABS head of Finance and Wealth, said lending remained above pre-pandemic levels but was significantly lower than it was a year prior.

“In December 2022, the value of total new housing loan commitments was 23 per cent higher than the level seen in February 2020, prior to the COVID-19 pandemic,” he said.

“In December 2021, the value of these commitments was 74 per cent higher than the pre-pandemic level.”

Investor lending was down in NSW (-5.9 per cent), Victoria (-5.4 per cent), Queensland (-5.1 per cent) and the Northern Territory (-4 per cent).

Lending to investors was up in South Australia (2.3 per cent), Western Australia (5.3 per cent), the ACT (1.4 per cent) and Tasmania (18.2 per cent).

Investor lending has ‘fallen off a cliff’

Michael Pell, managing director of buyers agency and property investment advisory Propell, said the dip in investor lending was a particularly worrying sign given the current rental housing crisis being experienced across Australia.

“The volume of new investors has fallen off a cliff because of the rising interest rate environment preventing many from accessing finance at a time when our rental markets are critically undersupplied,” Mr Pell said.

“Analysis of latest official lending data also found that the number of new investor loans had been steadily increasing from the low point in May 2020 until about June last year, which is when the current investment downturn began.”

He said the number of new investment loan commitments had dropped nearly 28 per cent since December 2021 and that the proportion of loans made out to investors stood below the decade average.

Mr Pell said that, high interest rates aside, it was actually a good time for investors to be entering the market.

“When you consider that rents have risen by double digits over the past year, as well as softer market conditions, it is actually ideal timing for would-be property investors to enter the market,” Mr Pell said.

“In fact, it is those prospective investors, who perhaps already own a home, who are the best placed to take advantage of the current market dynamics, whilst also being unlikely to face the lending headwinds that existing investors may be experiencing at present.”

Refinancing activity to continue

PropTrack Economist Angus Moore said the latest lending figures showed lending was down on historical averages, it had managed to recover slightly from the lows experienced during the height of the pandemic.

“While total new lending to investors has declined in the past year – and declined further in December – investors are a larger share of new lending than they were during the pandemic,” Mr Moore said.

“In December, a little over a third of new lending went to investors, compared to less than a quarter in 2020 and early 2021.”

He said first-home buyers in particular had been hit hard by rises to the official cash rate, and that this was evident in the latest lending figures.

“After busy years in 2020 and 2021, the number of new mortgages to first-home buyers fell to its lowest level since mid- 2017 in December 2022,” Mr Moore said.

With further cash rate rises predicted, it was likely that this trend would continue in 2023.

“With the expectation of further interest rate rises weighing on buyers, new mortgage lending is likely to continue moderating in 2023 and won’t hit the peaks seen in 2021 and early 2022,” Mr Moore said.

Refinancing, on the other hand, would continue to account for a high proportion of lending activity as borrowers looked to find a better deal following the end of their fixed-rate period.

Refinancing between lenders fell 1.5 per cent but remained high at $19.1 billion in December 2022, the ABS reported.

“But refinancing activity, particularly as many homeowners roll off fixed rates, will be strong,” Mr Moore predicted.

“While external refinancing declined very slightly in December, it’s up more than 20 per cent compared to a year ago.”

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Jack Needham

Jack Needham was a Digital Editor at Elite Agent in 2022 & 2023

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