2025 sees surge in business and home lending, RBA reports

Vado Private forecasts robust lending growth for 2025

2025 sees surge in business and home lending, RBA reports

News

By Mina Martin

Recent data released by the Reserve Bank (RBA) indicated a significant acceleration in both business and home lending, challenging earlier predictions by economists of a potential slowdown.

As of the end of December, business credit growth reached 8.9%, marking the highest rate since May 2023 and showing an increase from 8.6% in November.

Similarly, growth in investor housing credit surged to 5.1% in December 2024, up from 4.7% in November, achieving its highest rate since December 2022.

Owner-occupied mortgage lending also grew, maintaining a rate of 5.7%, the highest since April 2023.

Drivers of credit demand

According to Simon Arraj, director at Vado Private, several factors are contributing to the rising demand for both business and housing credit.

“The demand for business and housing credit is growing due to several factors,” Arraj said. “The labour market is strong, and wages are rising, which is supporting lending.”

He noted that significant investments by Australian businesses in sectors such as housing construction, renewable energy, and transportation infrastructure are driving the need for substantial capital, often financed through corporate and private credit loans.

Credit supply challenges and opportunities

Arraj highlighted a growing funding gap between what traditional banks can provide and the capital demands from corporate borrowers. This scenario presents a unique opportunity for private credit to play a crucial role in financial portfolios.

He elaborated on the benefits of private credit, noting, “Private credit can deliver investors yields of circa 10% per annum, which is more than double the returns on deposits rates paid by banks, which were below 4.5% in December 2024.”

RBA’s endorsement of private credit

The RBA has recognised the appeal of private credit, particularly its favourable risk-return balance.

“Private credit has an attractive risk-return trade-off for some investors,” the RBA said. “It pays a relatively high interest rate – generating higher returns than other similar assets such as leveraged loans – and to date has exhibited low volatility relative to publicly traded assets, like corporate bonds.”

Arraj suggested that Australian investors could significantly benefit from incorporating higher-yielding private debt into their portfolios to achieve a high risk-adjusted return on capital.

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!