Australia’s housing finance market is entering a new phase, with the latest ABS figures pointing to fewer first-home buyers and property investors taking out new loans in the March quarter, even as dwelling prices continue to rise.
Westpac’s Australian Dwelling Finance Bulletin, drawing on ABS data, reports that “new dwelling finance approvals fell –3.8%qtr, the largest drop in three years.” Annual growth in the value of new lending slowed to 18.5%, highlighting a clear step down from the strong gains recorded through 2025.
The decline was driven mainly by fewer loans being written rather than smaller mortgages. Total loan numbers fell 6.2% over the quarter, while average loan sizes continued to edge higher, broadly tracking national home price growth over the year to March.
Owner-occupier lending recorded the sharpest adjustment. The number of owner-occupier loans dropped 6.9% in the quarter, with the value of approvals down 4.3%. Within this group, first-home buyers saw the most pronounced decline as earlier strength linked to government guarantees unwound.
Westpac notes that “first-home buyers were the main drag amid some payback after the Q4 scheme boost.” With mortgage rates higher than a year ago and serviceability assessments remaining tight, these borrowers are facing reduced borrowing capacity even as entry-level property prices remain firm.
Investor lending weakened alongside owner-occupier demand. Westpac finds that “investor lending recorded its steepest drop since late-2022, with loan values and numbers down –3.0%qtr and –5.3%qtr respectively.”
The softest spot was loans to purchase newly built dwellings, which fell more than 16% and now account for a historically low share of investor commitments. Loans for established dwellings also declined, while construction loans to investors extended a multi-year run of modest quarterly gains.
The March-quarter figures arrive as recent federal budget measures begin to rebalance tax incentives away from highly leveraged investment in established property and towards construction and new dwellings. Combined with lingering cost pressures in the building sector and higher mortgage rates, the data point to an extended adjustment phase ahead for Australia’s housing finance market.
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