The value of new home and investment property loans fell 2.9% in April month-on-month or 25.8% from the same time last year with just $23.26 billion in loans written, the latest ABS lending indicators showed.
The results come following the short-lived uptick in March – the first increase in home lending in 14 months – as the combination of higher interest rates and supply constraints do their job holding borrowing down, said Steve Mickenbecker (pictured above), Canstar’s finance expert.
New loans to owner-occupied borrowers slumped by 3.8% over the month or 24.3% annually, while lending to first-home buyers slipped 2.1% in April from the previous month and 16.4% year-on-year.
Investment lending, meanwhile, was down just 0.9% in April, but has seen the largest annual fall among the three borrower groups, plummeting 28.6% from the same time last year.
“April housing lending is still 25.8% below the boom times of April 2022,” Mickenbecker said. “Eyes are now wide open to the risk of rising interest rates and borrowers are not rushing back into the market.
“The recovery in property prices in capital cities around the country in recent months is largely driven by a shortage of supply, rather than a return to buoyant demand for property. Sellers are sitting back waiting for more favourable conditions and that demand is unlikely to come before interest rate cuts become a near certainty.”
Mickenbecker said saving for a deposit remains a hurdle to homeownership, made all that much tougher by higher rents and other living costs. An even greater barrier, though, is the affordability of repayments – and it may take some time before Aussies can see any relief.
“Even if the Reserve Bank pauses the cash rate increases in June, it has made clear that further cash rate increases may be on the way, and the inflation beast looks far from tamed even after a year of rate increases,” he said.
“Those who beat the interest rate increases a year ago, may now be reflecting on their good luck which has left them with sky-high mortgages, monthly repayments up by 54%, and the vortex of high cost of living. A cash rate pause by the Reserve Bank in June will not be enough to provide relief.”
Canstar’s analysis showed the average variable rate for existing borrowers has lifted from 2.98% in April last year to 6.73% after the May 2023 cash rate hike. That meant an additional $1,133 in repayments on a $500,000 loan over 30 years, or $2,268 on a $1 million loan.
The value of loans refinanced in April was just at $19.30bn, which was down 9.2% from the prior month, showing a slowing in borrowers seeking to switch lenders and was the largest monthly drop since November 2020.
“The potential for savings by switching into a lower interest rate loan is enough to cover almost half of the Reserve Bank cash rate increases, making it inextricable that the volume of loans refinanced to a new lender fell by 9.2% in April,” Mickebecker said.
“The value of loans refinanced externally to another lender is only up by 14.2% from a year ago when most borrowers were on the lowest rate they could remember paying. Unfortunately, there is a whole class of borrowers that won’t qualify for a lower rate loan because they are already in mortgage stress, and relief isn’t coming any time soon. They remain hostage in the loan for now and will have to trim their household budget and look for ways to top up their income.”
He urged borrowers who can still comfortably afford their repayments to start acting now to get into a low-rate loan, “to ease their current discomfort, and future-proof themselves from further rate increases.”
By refinancing from the average existing borrower rate of 6.73% to the lowest ongoing variable rate of 4.94%, a borrower with a $500,000 loan over 30 years could save roughly $570 per month in repayments and more than $205,000 in interest over the life of the loan.
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