Number of loans to first-home buyers is growing

While property investors dominated the mortgage lending market at the start of this year, the tables have since turned and first-home buyers have since gained the ascendancy, according to the latest data from the Australian Bureau of Statistics (ABS).

Investors, weighed down by targeted interest rate hikes by the lenders, were in retreat for the third consecutive month, with the value of their loans falling by a solid 3.9% to $12.1bn.

In seasonally adjusted terms, the value of owner-occupier loans edged up by 0.9% to $21bn, while overall commitments to buy slipped by 0.9%.

The buyers who’ve seen the biggest growth are now first-home buyers, with the number of loans to this sector jumping by 5.2% over the month.

As has been the case in every month of this year, first-home buyers have carved out a larger slice of the market for themselves.

Having started this year on a historic low with just 13.4% of all loan commitments, by July, this percentage had risen to 16.6%.

Over the month, the average first-home buyer loan rose by $4,000 to $321,800.

At the same time, the average loan size for all owner-occupied housing commitments dropped by $5,000 to $370,500.

“It looks like some stamp duty exceptions for first homebuyers following the 2017/18 round of state budgets has had a positive impact on first home buyer activity,” said Gareth Aird, senior economist at Commonwealth Bank of Australia (CBA).

Overall, significant weaknesses are becoming apparent in the property market, according to Henry St John, analyst at JP Morgan.

“The average loan size for owner-occupiers contracted for a second consecutive month, having fallen from a local peak of $380,000 in May to $371,000 in July," St John said.

“Refinancing activity, which in the owner-occupier component of the data requires mortgage holders to have shifted from one bank to another, fell 0.7 per cent in volume terms, and is now running at -16.8 per cent over the year,” St John added.

This pattern appears to align with anecdotal evidence which suggests that as the banks  continue to tighten their mortgage pricing, more restrictive lending standards will make it increasingly difficult to shift mortgages from one bank to another.

St John added that investor lending has gradually weakened over the past six months.

“Investor lending values have now declined 11.3 per cent over the last 6 months, and the annual run rate is now effectively flat,” he said. “This is consistent with the slowdown in investor credit which we have observed in recent months, and July's numbers suggest that there is scope for investor credit to continue to grind its way lower as we approach year-end.”