first-home buyers, a slight increase from the $1.6 in the previous year, while the amount claimed by owner-occupiers also hiked from $5.3 billion in November 2020 to $5.7 billion a year later. However, a significant drop was reported in the share of lending to investors who accounted for $1.5 billion, 31.7 per cent decrease from a year earlier.
According to Kelvin Davidson, the Chief Property Economist at CoreLogic, the hike in demand for new home loans that month was driven by first-home buyers and owner-occupiers, while a 40 per cent deposit requirement, together with tougher tax rules saw a steady drop in investor lending. However, he is of the view that a slowdown in overall lending flows is firmly on the cards for the new year, which would be a housing market handbrake.
He noted that the key trend to watch would be how lenders adjust to the new rules on lending to owner-occupiers with low deposits. They can only lend 10 per cent of new mortgages for applicants with a deposit of less than 20 per cent. This he said would have the biggest impact on first-home buyers.
“In 2017, when the speed limit was last set at 10 per cent, in practice the banks operated more cautiously at only 5 per cent of lending at a low deposit,” Davidson said. “If history repeats, there is plenty of tightening, and it is likely to hamper first-home buyers the most, and at a time when they’re being hit hard by more stringent income and expense testing.”
Another issue would be the impact of higher interest rates on borrowers who had fixed mortgages due to refinance. According to Davidson, about two-thirds of loans will be exposed to rate hikes over the coming months, with May and June being the crunch period.
“If someone fixed for one year in May last year at about 2 per cent, they are looking at a rate of 4 to 4.5 per cent in a few months’ time when their term is up. It’s quite a change,” he said. “That will be a headwind for the housing market, as well as the wider economy as households are forced to divert their spending towards mortgage debt repayments.”
