New lending data shows a decline as borrowers await rate cuts

According to the latest ABS Lending Indicators, the Australian Bureau of Statistics has highlighted a decrease in new housing lending in January, marking the second consecutive month of decline. The data, seasonally adjusted, reveals that January saw a total of $25.12 billion in new home and investment property loans, experiencing a 3.9% dip from December.

Owner occupiers were notably the least active within the market during January, with their activity dropping by 4.6%, culminating in $15.91 billion in loans settled. On the other hand, lending to investors decreased by 2.6%, totaling $9.21 billion in loans at the start of the year. Despite these monthly decreases, investment lending saw an annual increase of 18.5%, and first home buyer activity rose by 13.2% compared to January of the previous year.

Steve Mickenbecker, Canstar’s lending expert, interpreted the fluctuating activity as indicative of upgraders and downsizers awaiting rate cuts to enhance their borrowing power, while investors and first homebuyers compete for the current market stock. He noted, “The value of new lending in recent months being up, down, flying around signals that borrowers believe the recovery of housing prices over the past 12 months is unlikely to reverse and that now is the time to jump in.”

Mickenbecker further elaborated on the motivations driving market dynamics, explaining, “The biggest recovery is with first home buyers, up 13.2 percent in a year, and investors up 18.5 percent. These are the groups that add to demand for housing stock and the overall level of debt in the property market.” He highlighted the fear of missing out as a significant driver for first-time buyers and seasoned investors, compelling them to make early moves in response to rising prices.

Refinancing activity has also seen a decrease, with fewer borrowers seeking better deals at the start of the year. January witnessed a 5% reduction in existing loans being refinanced to new lenders compared to December. The total value of loans switched to a new lender during January amounted to $16.07 billion, significantly lower than the peak of $21.5 billion seen in July 2023.

As interest rates have risen since May 2022, approximately $400 billion worth of loans have been refinanced to new lenders, encompassing around 756,395 loans. This represents only about 20% of the outstanding home lending from April 2022, suggesting a remaining opportunity for borrowers to switch and potentially save.

Mickenbecker commented on the implications of the 4.25 percentage point increase in the cash rate since May 2022, illustrating the significant financial impact on borrowers. He urged borrowers not to wait for rate cuts from the Reserve Bank, stating, “The disappointment in the Reserve Bank’s January housing lending data is the fall in refinancing activity with fewer borrowers making the switch to a new lender to get a better deal.” He emphasized the importance of borrowers initiating their own interest rate cuts by refinancing to lower-priced loans as a means to achieve substantial savings.