First homebuyer loans plunge despite record collapse in property investor lending - realestate.com.au

Investor lending in Australia has experienced an unprecedented decline, raising concerns about the impact on first homebuyers. Nerida Conisbee, the chief economist at Ray White, noted that while investor lending has plummeted, first homebuyers are not stepping in to fill the void. Recent lending statistics indicate that both groups are pulling back from the market.

In the September quarter, new loans for investors decreased by 30.6% to 35,301, marking the steepest quarterly drop since the data series began. This decline is nearly double the previous record. The overall value of new housing loans also fell by 15.5%, another record low. Meanwhile, first homebuyer loans dropped by 8.6% during the same quarter, totaling 26,415, which is the lowest figure since the end of 2022.

Since the peak of lending in December of the previous year, investor loans have diminished by 43%, while first homebuyer loans have decreased by 16%. The narrowing gap between the two groups is primarily due to the more rapid decline in investor lending. This situation follows the extension of a 5% deposit scheme in October 2025, after which five interest rate hikes raised the cash rate to 4.85%, the highest level in 18 years. These increased borrowing costs have diminished purchasing power, making it more challenging for both investors and owner-occupiers to purchase homes.

Despite the significant downturn in home lending, the Federal Government has pointed to the latest data as evidence of the effectiveness of its housing policies. On the same day that the Australian Bureau of Statistics (ABS) reported the largest drop in home lending on record, the Government claimed that recent data indicated “real success” in promoting homeownership among Australians. They cited that the proportion of new loans allocated to owner-occupiers increased from 59% before the Budget to 68% afterward.

However, an increase in the share of owner-occupier loans does not necessarily equate to more individuals purchasing homes; it merely reflects a sharper decrease in investor lending. First homebuyer loans are approximately 3,700 fewer than the previous year, and owner-occupier lending also fell by 9.8% in the September quarter. This trend suggests that there are fewer first homebuyers securing loans, contrary to the perception of a successful policy.

Another pressing concern is the impact on investment in new housing. The intention behind limiting negative gearing to new homes from July 2027 was to redirect investor interest from established properties to new constructions. Although there has been a slight shift in the composition of investor lending towards new homes, the September quarter saw an 11.8% decrease in construction loans to investors. This decline has not resulted in increased financing for new homes.

Investor loans for construction and newly built properties have remained relatively stable over the year at around 9,700 per quarter. In contrast, loans for established homes have halved since December. While it is evident that investors are withdrawing from the established housing market, there is little indication that they are investing in new developments. Looking ahead, further declines in investor lending are anticipated, especially following the recent Budget changes, which have yet to fully reflect in lending data. The prohibition on new Self-Managed Super Fund (SMSF) borrowing for residential properties took effect on August 10, with transactions contracted before that date still proceeding.

Unlike negative gearing changes, the SMSF ban applies to new homes, suggesting that investor lending for construction will likely continue to decrease in the December quarter. This poses a significant challenge for housing supply, as developers typically require substantial pre-sales to secure financing for construction. Investors have historically played a crucial role in these pre-sales, particularly for apartment developments, with SMSF investors accounting for an estimated 30% of such sales. With SMSF borrowing now restricted and other investors retreating amid rising interest rates, the future of funding for new housing construction appears uncertain. Escalating construction costs further compound these challenges.

Predictions indicate a decline in dwelling investment over the next year. My previous analysis suggested that rental yields would need to rise from approximately 3.95% to 5.15% to compensate investors for the recent Budget changes. Until returns improve, it remains improbable that investors will return in significant numbers. The latest lending figures demonstrate that a reduction in investor activity does not inherently lead to an increase in first homebuyers entering the market or more investment in new housing. Australia faces a pressing need for additional homes, yet current policies designed to stimulate new supply seem to be dissuading potential financiers.