New home lending has suffered its steepest quarterly fall on record, led by a collapse in loans to property investors, with first-home buyers also pulling back. Industry figures say tax changes and rising mortgage rates have severely damaged buyer confidence.
The number of new investor loans fell 30.6% to 35,301 in the September quarter, and their value dropped 32.3% to $24.7 billion, according to ABS Lending Indicators released today. Both were the largest quarterly falls on record and almost double the previous record decline.
Across all borrowers, new home loan commitments fell 15% to 111,878, while their value fell 15.5% to $81.2 billion. That’s the steepest drop in value since the series began in 2002.
Herron Todd White chief economist Cameron Kusher (pictured upper left) said this was the first full quarter since the May Budget announcement, and the first to include the ban on SMSF limited recourse borrowing arrangements.
ABS head of finance statistics Mish Tan (pictured upper right) said investors were being affected by more than higher borrowing costs, including the potential effects of the tax changes and expectations of lower house prices.
“It’s hard to see how the tax changes, along with five interest rate increases this year, have done anything but decimate confidence in the property market,” Kusher said.
Property Investment Professionals of Australia chair Cate Bakos (pictured lower left) said the full impact has yet to show up. She said investor settlements often take 60 to 90 days, so many loans in the September quarter data were likely for properties bought before the 12 May Budget announcement, along with a rush of SMSF purchases before the 10 August deadline.
“I don’t think we’ve seen the half of it yet,” Bakos said.
She also said new investor loans for building new dwellings fell 11% over the quarter. In her view, that suggests limiting negative gearing to new properties hasn’t encouraged investors into new builds.
Owner-occupier lending also fell, with the number of new loans down 5.3% in the quarter and 9.8% on a year earlier. Queensland, Victoria and NSW recorded the biggest falls.
First-home buyer loans fell 8.6% in the quarter and are now 12.3% lower than a year ago. First-home buyers still account for more than a third of owner-occupier lending.
“Even first home buyers, who these changes were meant to help, are hesitant to purchase right now,” Kusher said.
Bakos warned that fewer investors could mean fewer rental properties and higher rents, making it harder for first-home buyers to enter the market.
Sebastian Watkins (pictured lower right), chief executive of Lendi Group, which operates Aussie Home Loans and Lendi, said falling prices alone won’t fix affordability.
“A cheaper home offers little comfort when the bank will lend you less and the repayments take more of your income,” he said.
He noted the data predates November’s rate rise. Lendi’s modelling shows a couple earning $181,000 combined has lost almost $103,000 in borrowing power across this year’s five increases.
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