Property investors retreat as home buyers show resilience

A significant retreat of property investors from Australia's housing market is becoming evident, while home buyers seeking residences are demonstrating notable resilience. Data released by the Australian Bureau of Statistics reveals that new lending to property investors experienced a steep decline of 32.3% in the September quarter, marking the most considerable quarterly drop since records began in 2002. Additionally, the number of new loans granted to investors fell by 30.6%, underscoring the extent of their withdrawal from the market.

In contrast, the value of new lending to owner-occupiers, excluding first-time buyers, saw a more modest decrease of 5.3% during the same quarter, while lending to first-time home buyers declined by 8.0%. These figures highlight a growing disparity between investors and individuals purchasing homes for personal use, with the latter group faring significantly better despite the challenges posed by higher interest rates and a weakening housing market.

Ashwin Clarke, a senior economist at Commonwealth Bank, noted that the latest data indicates that investors are playing a pivotal role in the ongoing downturn of the housing market. He remarked that the divergence in borrowing patterns between investors and owner-occupiers suggests that the retreat of investors is a major factor contributing to the weaker market conditions. Clarke drew a comparison to the housing downturn of the late 2010s, when tighter lending regulations similarly led to a decline driven by investor behavior.

This pullback from investors contributed to an overall decrease of 15.5% in the total value of new housing lending in the September quarter, representing the largest quarterly decline on record. This figure was significantly more pronounced than economists had anticipated, with CommBank initially projecting a decline of only 6.8% prior to the data release.

The resilience of owner-occupier borrowing was apparent nationwide, despite a decline in lending across all states and territories. Tasmania and Queensland experienced the most significant drops, at 22.7% and 20.7%, respectively. Meanwhile, Western Australia and the Northern Territory saw smaller declines of 11.4% and 8.2%, attributed in part to more stable owner-occupier lending in those regions.

Separate research from CommBank indicates that many Australian households are now better positioned to cope with rising interest rates compared to previous tightening cycles. Clarke pointed out that household savings have increased substantially, while mortgage debt has decreased relative to household income. Currently, housing debt, excluding offset account balances, stands at 115% of household income, which is approximately nine percentage points lower than when the Reserve Bank initiated interest rate hikes in 2022.

Additionally, many borrowers have continued to make higher mortgage repayments following interest rate cuts last year. CommBank's data shows that around 85% of its mortgage customers did not seek a reduction in their scheduled repayments when rates decreased in 2025, potentially mitigating the immediate effects of subsequent rate increases.

Clarke suggested that these factors imply the direct impact of rising interest rates on household finances may be somewhat less severe than in earlier cycles. However, the research also indicates that the savings buffers among households can vary widely.

Despite the overall sharp decline in investor borrowing during the September quarter, lending for the construction and purchase of newly built homes remained relatively stable. The value of new lending in these categories dropped by 10.4% in the September quarter but was still slightly higher compared to the same period last year. Consequently, their share of total investor lending rose from 17.3% in the March quarter to 27.6% in September. Clarke noted that this trend aligns with the government's tax policy changes that favor investments in new builds.

Looking ahead, CommBank anticipates that investor lending will continue to remain weak as the housing market adjusts to higher interest rates and declining property values. The bank projects a peak-to-trough decline in national home prices of approximately 14%, with further price reductions expected to persist until 2027. Clarke expects the drop in investor borrowing to negatively impact overall housing credit growth in the upcoming quarters, forecasting annual growth to slow to 2.0% by the end of 2027, before recovering to 3.0% by the end of 2028. He added that the Reserve Bank is unlikely to alter its economic assessment significantly in light of the latest lending data, as much of the observed weakness has already been reflected in monthly reports from the banking regulator.