The demand for home loans took a tumble in May, despite the Reserve Bank cutting rates to historically low levels.
According to the May Housing Finance data from the Australian Bureau of Statistics, 50,366 home loans were approved over the course of the month – down from 53,643 the month prior.
chief executive officer John Flavell says this is the smallest number of home loan approvals recorded since August 2013.
“Over the month of May, we saw a 6.1% drop in the number of dwelling commitments for all owner occupied housing, as well as an 8.3% drop in the number of home loans approved for the construction of dwellings,” he said.
“And it wasn’t just the number of home loans approvals that fell over the month of May, the value of all dwelling approvals also took a fall.”
Just over $31 billion worth of home loans were approved over the month of May, down 4.4% on the month prior. The value of owner occupied dwelling commitments dropped 5.3% to just over $18 billion, while the value of investment loans tumbled 3.2% to $13 billion.
However, Flavell says he wasn’t surprised to see a dip in home loan activity in May given that a lot of lenders announced new lending restrictions that month.
“Over the month of May, we saw a number of lenders make some significant adjustments to their lending policy in a bid to curb their level of investment growth,” he said.
“Of course, while some of the changes made applied purely to investment lending, others went right across the board and impacted both owner occupiers and investors.
“Because of this, I am not surprised to see a drop off in the level of home loan demand in May. Moving forward, I wouldn’t be surprised to see this weaker level of demand continue, especially when you consider that the next few months of data will be from winter - which is a notoriously quiet time for the property market.”
Further, Flavell says global uncertainty – including the growing problems in Greece and China – may encourage potential buyers to take a seat on the sidelines.
“Economic uncertainty abroad may dampen the spirits of Australian property buyers, not to mention potential international investors.
“That said, while demand may weaken further over the coming months, it is important to note that by historical standards demand is still incredibly high and the value of home loans written each month is still very strong.”