Home Loans Surge…
The Australian Bureau of Statistics (ABS) reported last week that new home loan commitments in July 2020 rose 8.9% compared with June; this is the largest month-on-month rise in new home loan activity ever recorded by the ABS.
Why is this happening? Well, it is driven by a few factors, from the easing of restrictions (in most states), continual historic low interest rates, along with government incentives at state and federal levels aimed at stimulating the building industry, and Australia’s Covid19 overall resilience and management compared to many other countries; leading to a sustained amount of consumer confidence in the Australian housing market, despite the unforeseen challenges 2020 has thrust upon us.
The major driver has been owner-occupier loans, rising 10.7% over the month of July, with first-home buyer owner-occupier commitments increasing by 14.4%; but it is also worth noting new investor loans also rose over this time period by 3.5%, compared to June 2020.
ABS head of finance and wealth, Amanda Seneviratne said that “the largest rise in new loan commitments were in NSW, Victoria, and Queensland.”
Commonwealth Bank statistics also support this, reporting in August that despite a dip in April and May, new lending is still almost 20% higher than last year. Aside from Victoria and the ACT, lending by first-home buyers is up in all states; this has no doubt been boosted by government grants, access to superannuation, and spending capped by lock-downs (making it easier to save for a deposit)…but still surprising nevertheless.
CBA also reports that fixed-rate loans are surging in popularity; Australian borrowers have always been heavy users of variable rate mortgages. it is part of the reason monetary policy in this country works quite effectively. The average person notices a change in official interest rates in their mortgage payment. Fixed-rate loans have rarely accounted for more than 20% of loans. Now they account for 40% of CBA lending. These low rates mean borrowers can service far higher loans; and so, they are borrowing more. Average loan size is also up on last year, according to CBA data.
Very positive signs indeed when one looks at the wider context, and a solid indicator that now is still an opportune time to invest in Australian property. However, whilst we are dealing with living and adjusting to a Covid19 environment, there may be some volatility ahead in terms of the upswings and downswings in the lending cycle.