New home loans drop as housing market downturn deepens - News | InDaily, Inside Queensland

In the third quarter of the year, new mortgage loans in Australia experienced a significant decline, decreasing by 15%, as the housing market continues to face a downturn, according to recent data released on Wednesday. The sharpest drop was seen in lending to investors, which plummeted by 30.6% during this period.

This downturn has been largely attributed to the Reserve Bank of Australia's five interest rate increases, combined with stagnant real wages, which have collectively dampened housing demand among investors, first-time homebuyers, and existing homeowners. Additionally, changes in tax regulations for investors have further reduced interest in purchasing existing homes.

Over the past year, the total number of new loans issued has dropped by 21.4%, with a staggering 38.5% decline in loans taken out by investors. Despite this trend, the decrease in lending to first-time buyers was more modest, at 8.6% in the September quarter.

The current decline in mortgage lending underscores the fluctuations within Australia’s housing market. Although property prices have surged since 2000, the market has also experienced several significant downturns in terms of both property values and loan issuance. Historically, prior to the current downturn, average real prices have fallen for at least two consecutive quarters on four separate occasions since 2011. The most recent downturns began in March 2018 and March 2022, each lasting for at least one year.

Higher interest rates have impacted all segments of homebuyers requiring mortgages, resulting in decreased demand from investors, established homeowners, and first-time buyers alike. However, the steepest decline has been observed among investors, who represent a significant portion of housing demand and tend to be more responsive to anticipated changes in house prices and interest rates.

From September 2026, both the number and value of new investor mortgages fell dramatically by 38.5%, primarily due to a near 46.2% reduction in the purchase of existing homes. In contrast, new loans for non-first homebuyers saw a more moderate decline of 8.7%, while loans for first-time buyers dropped by 12.3% over the year.

This shift in lending patterns indicates that the proportion of total lending allocated to homebuyers has risen by nearly 9%. Additionally, the average loan amount for first-time homebuyers has increased by almost 10%. For many homebuyers, including first-time purchasers, falling property prices coupled with reduced competition from investors may facilitate improved access to the housing market.

It is important not to overlook the significance of the transition toward lending for owner-occupiers. Despite the increase in owner-occupier lending, the value of new loans for investors remains 1.5 times greater than that for first-time buyers. This trend is reminiscent of previous instances in 2014 and 2016 when stricter credit regulations were introduced for investors, which subsequently led to a decrease in the share of lending to that group and a relative decline in the prices of investor-acquired properties.

These tighter regulations have now been replaced by a serviceability buffer applicable to all borrowers, requiring them to demonstrate the ability to manage an additional 3% increase in interest rates on top of the current rates, which equates to a total of 12 standard rate hikes. However, as these lending buffers are primarily enforced by approved deposit-taking institutions, many borrowers are increasingly turning to non-bank lenders such as La Trobe Financial and Athena Home Loans, which specialize in loans but offer fewer ancillary financial services.

Over the past year, lending from major banks decreased by 7.1%, while lending from non-bank institutions surged by 67.7%, albeit starting from a smaller base. As housing prices decline, more first-time buyers may find it feasible to enter the market or afford higher-quality properties.

Recent analyses comparing monthly mortgage repayments before and after a hypothetical 10% price drop and six interest rate hikes indicate that repayments would have risen by 17.2%. Yet, for buyers who postponed their entry into the market or were unable to purchase prior to the price decline, the cost of monthly mortgage payments has only increased from $3,407 to $3,593, or a modest 5.5%.

The interplay of rising interest rates and falling house prices not only influences mortgage demand but also affects new housing construction in Australia, which typically responds to profitability driven by borrowing costs and property price fluctuations. A decrease in house prices often leads to a subsequent drop in new construction, which can negatively impact demand for materials, skilled labor, and real estate services, thereby affecting jobs and broader economic activity.

As Australian households allocate more of their budgets toward mortgage payments, there is likely to be less disposable income available for other expenditures such as dining, travel, and home furnishings. Recent consumer confidence metrics have confirmed remarks from Reserve Bank Governor Michele Bullock, suggesting that the current economic climate may feel akin to a recession.

This article is republished from The Conversation under a Creative Commons license. Read the original article.