Rate hikes still taking toll on home loan demand

Rate hikes continue to take its toll on lending activity, with the value of housing loan commitments striking bigger losses in September.

The latest sets from the Australian Bureau of Statistics showed that the value of new loan commitments for housing declined 8.2% to $25.1bn in September, extending the 3.4% fall in August.

Both owner-occupier and investor segments recorded decreases in the value of financing commitments, with respective declines of 9.3% and 6%.

ABS finance and wealth spokesperson Katherine Keenan said while housing lending has already fallen for four consecutive months, its value in September remained well above pre-pandemic levels.

“Owner-occupier loans in September were 23%higher than in February 2020, while investor loans were 60% higher.”

Meanwhile, there was a retreat from first-home buyers during the month — after a rise of 10.4% in August, the value of new loan commitments from the segment slumped 8.3%.

Housing Industry Association senior economist Nick Ward said the consecutive rate hikes made by lenders as the RBA adjusts its monetary policy were a huge driver behind the slowdown in lending.

“The RBA’s tightening is weighing heavily on demand for housing and the full impact will not emerge until the second half of 2023,” he said.

“These treacherous lags that characterise this housing cycle could result in the RBA weighing too heavily on households and businesses and jeopardising the housing industry’s future soft landing.”

Mortgage stress levels inching up

Around 948,000 or around 21.1% of all mortgage holders are considered “at risk” of mortgage stress over the September quarter, which covers three months of 50bps increases by the RBA, according to the latest research from Roy Morgan.

Meanwhile, the number of borrowers considered “extremely at risk” increased to 611,000 or 14.1% during the quarter.

The share of mortgage holders in both risk categories was still below the high reached during the global financial crisis and the long-term average over the last 15 years.

Roy Morgan CEO Michele Levine said if the RBA ends the year with another 25bps increase, more than one in four borrowers (26.2%) would likely to be at risk over the last quarter.

“It is important to consider that interest rates are but one variable that determines whether a mortgage holder is considered ‘at risk’,” she said.

“The variable that has the largest impact on whether a borrower falls into the ‘at risk’ category is related to household income – which is directly related to employment.”

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