New loan commitments for housing fell by 11.6% month-on-month in May, according to seasonally adjusted figures from the Australian Bureau of Statistics (ABS).
Bruce Hockman, chief economist at ABS, said the fall was largest on record and mainly driven by “strong falls” in New South Wales and Victoria.
Broken down, the value of new loan commitments for owner occupier housing fell 10.2%, while investor housing fell 15.6%. Meanwhile, the number of owner occupier first home buyer loan commitments fell 9.3%.
“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,” Hockman said.
However, refinancing was up 27.5% from April and 91.6% from the year prior – the largest month-on-month increase since July 2002
Sally Tindal, research director at RateCity.com.au, said that the figures showed “just how hard COVID-19 hit the housing market during lockdown.”
“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,” said Tindall. “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.”
Tindal added that refinancing, however, “went through the roof in May” because 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,” said Tindal. “Banks have been inundated with refinance applications, with some unable to keep up with the demand seeing processing times blow-out.”
Meanwhile, Adrian Kelley, president of the Real Estate Institute of Australia (REIA), said that the fall is not unexpected, 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.”
“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,” said Kelley.
For his part, Canstar finance expert Steve Mickenbecker said that investors will “continue to be bearish with new commitments at their lowest level since November 2002.”
“The new ABS lending commitment statistics are bad news for economic recovery, but borrowers are reshuffling the deck chairs, switching into well priced loans in this highly competitive lending market,” said Mickenbecker.