House price growth likely to ease after dip in approved home loans

by Micah Guiao23 Nov 2021

Rising house prices are expected to ease soon as the number of approved home loans falls, according to the Bluestone Home Loan Affordability Index.

Home loan affordability has fallen by 15.6% as a result of booming house prices. Dr. Andrew Wilson, consultant economist at Bluestone Home Loans, said approved home loans went from 87,932 to 84,998 from the August to September quarter.

New South Wales and Victoria experienced the steepest falls to date, with annual declines of 20.6% and 17.4%, respectively.

Meanwhile, housing affordability went down 1% compared to the August quarter, up from the 0.8% recorded over the previous quarter. The average loan size has also increased for each buyer, especially with the recent price surges in Sydney and Melbourne.

“Recent strong house price growth has resulted in buyers having to borrow more, and with subdued wages growth and flat interest rates, this has resulted in a higher proportion of incomes required for loan repayments,” Wilson said. “Stricter lending conditions from financial institutions also place a ceiling on borrowing capacity for buyers, which results in reduced demand and lower prices growth.”

The Bluestone Home Loan Affordability Index measures the proportion of the average income needed for the average home loan repayment. A higher index number indicates a higher proportion of the average income required for the average home loan.

The index went from 90.80 in the August quarter to 91.76 in the September quarter – both above the long-term average of 86.90.

“With national home loan activity set to revive as lockdowns restrictions end in Sydney and Melbourne, rising house prices and flat incomes will continue to reduce affordability and sideline home buyers,” Wilson said.