New home lending takes a dive in pandemic

Home lending has plunged in the wake of COVID-19, with the value of home loans falling dramatically in April – and the worst could be yet to come.

The Australian Bureau of Statistics lending indicator data released this week shows new lending dropped by $935.5 million (or 4.80 per cent) compared to March 2020, according to the seasonally adjusted data.

According to the Real Estate Institute of Australia, purchase of existing dwellings by owner-occupiers is driving the numbers down, with a decrease of 5 per cent.

The value of loans to investors fell by 4.2 per cent during April, and investor lending in the three months to April 2020 was 6.6 per cent lower compared to the previous three months.

REIA President Adrian Kelly said the value of new loan commitments for both owner-occupiers and investors displayed the largest fall in 12 months and the purchase of existing dwellings experienced the largest fall in more than a decade.

“Not surprisingly, ABS reports that lending institutions have indicated that COVID-19 impacts were being seen through both reduced demand from borrowers and tighter lending criteria,” Mr Kelly said.

“What is more sobering is that ABS says COVID-19 operational impacts experienced by some lending institutions resulted in a backlog of March housing loan applications being processed in April, which moderated the April fall in loan commitments.”  

The number of owner-occupier first home buyer loan commitments fell by 3.8 per cent in seasonally adjusted terms but the proportion of first home buyers, as part of the total owner-occupied housing finance commitments was 36.7 per cent.

Mr Kelly said despite the fall in new commitments for first home buyers, the numbers are 20.2 per cent higher than the most recent low point in December 2018.

“Feedback from agents suggests that worse is yet to come on housing finance figures as restrictions on movements throughout May and caution about the economy impact on activity in the housing market,” he said.

Housing Industry Association Chief Economist Tim Reardon agreed there will be challenges ahead, with some stats not yet showing the effects of the pandemic, such as loans for the purpose of constructing a new home, which increased by 2.9 per cent in April.  

“Full finance approval is one of the final steps for homebuyers who would have made the decision to build a new home as far back as 2019,” Mr Reardon explained.

He warned the volume of residential building activity is expected to decline throughout the rest of the year.  

“The Government’s HomeBuilder scheme, First Home Loan Deposit Scheme and the various state stimulus programs will be important in mitigating the extent to which this downturn weighs on the post-COVID economic recovery,” Mr Reardon said.

Across the states, the value of loans to owner-occupiers during the three months to April 2020 was higher than the previous three months in Tasmania (4.0 per cent), New South Wales (1.2 per cent), and Victoria (0.2 per cent).  

Lending declined over this period in Queensland (-3.8 per cent), South Australia (-4.9 per cent), Western Australia (-1.7 per cent), the Northern Territory (-0.3 per cent) and the ACT (-2.2 per cent).

Australians might not have been lining up new finance during lockdown, but they did seem to be refinancing existing home loans, with the number of external refinances increasing by 11.20 per cent in the month of April, and 26.96 per cent, year-on-year, according to the seasonally adjusted figures – the biggest monthly drop in debt accruing interest on record. Research Director Sally Tindall said a lot of Australians spent their lockdown refinancing their mortgages and getting on top of their debt.

“Refinance activity has taken off during lockdown,” Ms Tindall said.

“We expect this to continue to gain pace with many homeowners looking to sure up their finances.

“In relation to mortgages, today’s drop is likely to be the beginning of a long road ahead for the home lending market.

“In April alone, nearly one billion dollars of new lending was ripped out of the property market, as the country went into lockdown; the biggest monthly drop in new lending since October 2015, in dollar terms.”

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