New home loans slump to lowest number on record in May

As expected, new home loans have fallen sharply in response to the COVID-19 crisis, with the latest Australian Bureau of Statistics figures indicating the value of new loan commitments for housing dropped 11.6 per cent in May.

Noting this was the largest fall in the history of the series, ABS Chief Economist Bruce Hockman, said the slump was driven by strong falls in the value of loan commitments for housing in New South Wales and Victoria.

The value of new loan commitments for owner occupier housing fell 10.2 per cent, while investor housing fell 15.6 per cent. The number of owner occupier first home buyer loan commitments fell 9.3 per cent.

“While reduced transactions in the housing market stifled new loan activity in May, the value of existing owner occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers,” Mr Hockman said.

The value of new loan commitments for fixed term personal finance rose 14.5 per cent in May, seasonally adjusted, following a 24.8 per cent fall in April.

“The rise in the value of new loan commitments for fixed term personal finance was driven by a partial rebound in the value of new loan commitments for road vehicles,” Mr Hockman said.

Not unexpected – REIA

The Real Estate Institute of Australia (REIA) was quick to note falls were not unexpected and the real estate market had continued to maintain decent prices with a lower level of supply.

“The fall is not unexpected with feedback from agents during May, as restrictions on movements throughout the month were in place and a general air of caution about the economy and its impact on activity in the housing market prevailed, suggesting that this would be the case,” REIA President Adrian Kelly said.

“The fall was driven by large reductions in the value of loan commitments for housing in New South Wales and Victoria and contributed to the yearly fall of 7.3 per cent. Smaller falls were reported for all other states except ACT.

“The value of new loan commitments for investor housing fell 15.6 per cent for the month and 11.9 per cent for the year – again driven by Victoria and New South Wales.

“New loan commitments for owner occupier first home buyers fell by a similar proportion to the overall fall in owner occupier commitments for dwellings with a fall of 10.5 per cent by value for the month in seasonally adjusted terms but a 19.3 per cent increase for the year.

“NSW and Queensland drove the fall in the number of loan commitments for owner occupier first home buyers with all other states except ACT recording falls,

“While reduced transactions in the housing market stifled new loan activity in May, the markets have held up through a low level of supply. A situation that is continuing in the larger markets, ” concluded Mr Kelly.

Incentives yet to be factored in – HIA

The Housing Industry of Australia (HIA) explained new initiatives like the HomeBuilder program had not yet come into effect during the timeframe of the ABS figures.

“Today’s Housing Finance data does not reflect the impact of HomeBuilder program announced in June. We don’t expect to see the positive impact of HomeBuilder reflected in Housing Finance data for a number of months,” HIA Chief Economist, Tim Reardon said.

“This month’s data reflects the peak of the COVID-19 related shutdown and likely includes reduced demand for existing homes and the slower processing of applications.

“Due to the lag between submitting a finance application and gaining approval, we anticipate that this is only the beginning of negative finance and construction data from the ABS.

“Data shows that loans for the purchase or construction of a new dwelling held on relatively well. This reflects the longer timeframe between purchasing a new dwelling and gaining access to finance.

“First home buyers fell by 9.3 per cent during May, led by a decline of 18.8 per cent in New South Wales. This is not surprising given the level of risk aversion and lack of equity within this cohort.

“There was a surge in re-financing during the month, to the highest level on record, as households took advantage of record low interest rates.

“It is difficult to draw conclusions from this data other than there has been a material disruption to the housing market.

“HomeBuilder along with other state incentives and an easing of restrictions will assist in bringing consumers who delayed their purchasing decisions back to the market.

“This will minimise the adverse impact of the COVID-19 shock on employment in the homebuilding sector, but this will not be reflected in ABS data for some months.

“HIA New Home Sales for June, will be the first indicator of the impact of HomeBuilder on the housing market.”

Across the states, the value of loans to owner-occupiers (excluding refinancing) during the three months to May 2020 was significantly lower than the previous three months in Western Australia (-14.6 per cent), Queensland (-12.9 per cent), the Northern Territory (-7.4 per cent) and South Australia (-7.0 per cent). Tasmania (-4.8 per cent), Victoria (-3.1 per cent) and the ACT (-3.1 per cent) also recorded declines.

New South Wales was relatively flat, declining by 0.5 per cent over the same period.

Only a matter of time – Mortgage Choice

Speaking about the data, Mortgage Choice Chief Executive Officer Susan Mitchellsaid it was only a matter of time until the impact the COVID-19 pandemic on the property market became evident.

“Drilling down on the data, the greatest falls were in investment loans, which continue on a downward trend and recorded a month on month decline of 15.6 per cent to levels not seen since 2002,” Ms Mitchell said.

The value of loans to owner-occupiers were down 10.2 per cent month on month, excluding refinance and the number of loans to first home buyers was down 9.3 per cent.

“The ABS data reveals an uptick in the number of refinance commitments. This shift is consistent with Mortgage Choice’s home loan approval data, which shows a rising trend in the number of borrowers opting to refinance, with over half of home loan applicants choosing to refinance over the month of May,” Ms Mitchell said.

“Borrowers are understandably concerned about the economy and with most of us spending more time at home, people are taking the opportunity to review their household finances and find ways to save money.

“Adding to this, intense competition in the home loan market, with lenders trying to out-do each other with cash back offers and historically low fixed interest rates, is encouraging borrowers to re-think their home loan options.

“Looking forward, demand for housing faces many headwinds. The impact of new lockdowns in Victoria, weak population growth, rising unemployment, and stagnant wage growth will continue to put downward pressure on consumers’ appetite for debt.

“That being said, record low home loan interest rates, Government stimulus and grants will bolster demand for housing among consumers in a strong financial position in the near-term,” Ms Mitchell concluded.

Refinancing at a record high – RateCity

While many were keen to focus on new home loan data, RateCity turned their attention to refinancing, noting it had hit a record high.

The number of external refinances increased by 29.19 per cent from April to May, and 63.10 per cent, year-on-year, according to the seasonally adjusted figures.

Value of new loans% change
Apr 2020 – May 2020
% change
May 2019 – May 2020
Total housing-$2.15 billion -11.59%$290.7 million 1.80%
Owner occupiers-$1.39 billion -10.16%$842.3 million 7.34%
Investors-$758.80 million -15.61%-$551.60 million -11.86%
Notes: Seasonally adjusted figures. Figures exclude refinancing.
Source: ABS lending indicator statistics for May 2020, released 9 July 2020.
External refinancing% change
Apr 2020 – May 2020
% change
May 2019 – May 2020
Notes: Based on the number and value of new loans to owner occupiers using seasonally adjusted figures.
Source: ABS lending indicator statistics for May 2020, released 10 July 2020. research director, Sally Tindall said the drop in home lending was a result of the COVID-19 restrictions in April, as new home loans typically take a number of weeks to settle.

“Today’s figures show just how hard COVID-19 hit the housing market during lockdown,” she said.

“May recorded the biggest monthly drop in the value of new home loans settled, as vendors pulled the pin on listings, and on-site auctions were banned for weeks.

“While we could see a small rise next month in response to a lifting of COVID-19 restrictions, it’s still likely to be a long road ahead for the home lending market.

“Refinancing, however, went through the roof in May, as homeowners looked for quick ways to reduce expenses and get into a better financial position.

“Mortgage holders sick of paying an excessive loyalty tax are capitalising on the record low new customer rates on the market.

“Banks have been inundated with refinance applications, with some unable to keep up with the demand seeing processing times blow-out,” she said.

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Cassandra Charlesworth

Cassandra Charlesworth is a features writer for Elite Agent Magazine with over 15 years’ journalism experience in metropolitan and regional newsrooms. She has a specialist interest in real estate, tech disruption and a good old-fashioned “yarn”.