The door is “wide open” for first home buyers looking to gain a foothold in the market as demand for home loans hits its lowest level in four years.

The total value of housing finance commitments (approved mortgages) fell 3.8 per cent in seasonally adjusted terms to $29.1 billion in September – the lowest monthly total since August 2014 – according toAustralian Bureau of Statistics housing finance data released Friday.

Owner-occupiers accounted for the lion’s share, taking out 51,167 home loans for a total of $19.4 billion in September, while investors borrowed a combined $9.8 billion over the same period.

The drop in demand for mortgages signals that the downturn in Sydney and Melbourne is becoming more entrenched, according to commentators.

Source: CoreLogic

Lending to owner occupiers in September was 9.4 per cent lower than its monthly peak in February 2018, while lending to investors was 33.8 per cent lower than its April 2015 monthly peak, analysis by property data firm CoreLogic showed.

While investors have driven the decline over the past few months, demand from owner-occupiers is now also “clearly easing”, CoreLogic analyst Cameron Kusher said.

Door ‘wide open’ for first home buyers

Reduced competition from investors gives would-be first-time buyers a greater opportunity to gain a foothold in the market, RateCity research director Sally Tindall said.

First home buyers accounted for approximately 18 per cent of owner-occupier housing financing in September, with 8,693 loans written.

The difference between now and a year ago “couldn’t be starker”, she said,

“This time last year, no-one predicted the falls in new lending would be this significant, particularly for owner occupiers,” she said.

“The good news now is the door is wide open for first home buyers, provided they’ve got a decent deposit saved up.

“Banks are still in the business of writing loans. It just takes a bit more time and paperwork.”

The new market conditions mean buyers now have “more choice” and “little in the way of urgency to make a purchase decision”, according to Mr Kusher.

Downturn set to continue

The trend of declining home values and reduced demand for mortgages is likely to continue into 2019, Mr Kusher said.

“It is hard to see a reversal in dwelling value declines or a lift in sales activity any time soon,” he said.

“The upcoming pause for Christmas and New Year may see some adjustment in the New Year but even that looks unlikely.

“For the coming months it is expected mortgage demand will continue to fall as will dwelling values.”

Master Builders Australia’s chief economist Shane Garrett attributed the slump in loans to investors to falling home values, stagnant rental yields, credit tightening by financial regulator APRA, and the banking royal commission making lenders “more jittery”.

“Since house prices in Sydney and Melbourne started falling last year, investors have been deprived of a major carrot,” he said.

“Rental prices are rising more slowly than at any time in a quarter of a century. This is great news for renters – but won’t put many smiles on the faces of investors.”