Money Property Fall in mortgage lending worst since GFC, new data reveals
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Fall in mortgage lending worst since GFC, new data reveals

Sydney skyline
The latest ABS data shows home loan lending fell more year on year in May than it did in the year after the GFC. Photo: Getty
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Mortgage lending has dropped off a cliff, new data has confirmed.

And economists say the recovery will be slow.

According to investment bank UBS, the annual fall (in total mortgage lending) of 20.9 per cent was the worst year-on-year decline since the global financial crisis, and the peak-to-trough fall of 27.3 per cent is now one of the sharpest ever recorded.

The data from the Australian Bureau of Statistics (ABS) showed that lending to owner-occupiers in May was 2.7 per cent lower than it was in April, while lending to investors was 1.4 per cent lower.

Year on year, though, the declines were 18 and 27.8 per cent respectively – with lending to developers also drying up.

Source: ABS and Ratecity

“Separately, total ‘developer’ loans [construction and purchase of real property] also plummeted in three-month average terms by 33 per cent [year on year],” wrote UBS economists George Tharenou, Carlos Cacho and Jim Xu. 

“If this continues, it would be very worrying for construction.”

The ABS data relates to mortgage lending in May and therefore does not offer a real-time reflection of the current state of the market.

Analysts and economists have mostly observed an uptick in market sentiment after the Coalition’s surprise election victory.

The UBS economists said “optimism had returned to housing”. And after six months of consistently slowing falls, house prices in Melbourne and Sydney increased in June by 0.24 and 0.07 per cent respectively, according to CoreLogic.

Cameron Kusher, a senior research analyst at the property analytics firm, told The New Daily at the time that the slight pick up in values suggested the worst of the downturn was now behind those cities.

And he said the ABS home loans data was “pretty in line with expectations”.

“The data is somewhat lagged, but it shows us that demand for mortgages remained soft and continued to soften through to the end of May 2019,” he said.

“The election only occurred late in the month, so any rapid reversal of fortunes seemed unlikely.” 

Since voters went to the polls, the Reserve Bank has twice slashed the official cash rate to a record low of 1 per cent, and APRA has committed to removing its 7 per cent mortgage serviceability buffer.

Mr Kusher described those changes as “positive for the market”, but said tight lending conditions – including the move away from the household expenditure measure (HEM) and the introduction of comprehensive credit reporting – would soften their impact.

“It’s important to reiterate any recovery isn’t likely to be rapid, rather a slow and steady improvement,” he said, adding that it could take up to six months for the market to feel the benefits of the rate cuts. 

Particularly with a mortgage, conditions change. You then have to get finance approval, you then have to find a property you like, you then have to purchase said property. 

“All of those things take time so any improvement may take a while to show up in the data.”

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