New Home Loans Fall In “Most Difficult Lending Environment In 30 Years”

New mortgage lending has dropped sharply to its lowest value in 12 months, while refinancing has hit a historic high, latest housing finance figures reveal.

The Australian Bureau of Statistics data, released Thursday, showed the total value of mortgage lending actually increased by 2.8{d872b83874cbc456d4e7e49f0ae218a6abf1c172c201c18bd21e1a6839859f06} in May 2020 to $31.5 billion – but broken down, $16.4 billion went to new loans and $15.1 billion to those refinancing – with the latter a record high value.

Lending for new mortgages dropped sharply in May 2020. Picture: Getty

Cameron Kusher,’s executive director of economic research, said the unusual trends reflect the height of the COVID-19 lockdowns in May. In that period many existing mortgage holders either changed their lender or mortgage on the back of record-low interest rates, and new borrowers pulled back.

“We would expect a slowing over the coming months of the rapid increase in refinances and a moderate improvement in new lending,” Mr Kusher added.

“The federal government’s HomeBuilder package was announced in early June and [since then] we have seen enquiry for new homes surge. This interest – and subsequent purchases – is unlikely to become evident in the data for several months until such time as the construction is completed and settlement occurs.

“There has also been a rebound in enquiry to real estate agents via through June 2020 from owner-occupiers and first-home buyers, and I would expect housing finance data over the coming months will also start to reflect this.”

Weak investor lending could start to improve soon

The ABS’ total value for new lending was mostly made up of owner-occupiers buying a subsequent home ($8.6 billion), followed by investors ($4.1 billion) and first-time owner-occupiers ($3.7 billion).

The value of lending to investors has fallen for five consecutive months, however, a 15.6{d872b83874cbc456d4e7e49f0ae218a6abf1c172c201c18bd21e1a6839859f06} fall in May was the largest monthly fall on record, and the lowest monthly value on record.

Volatile stock markets, closed international borders and job losses for people under 30 were major contributors to soft investor activity, and HomeBuilder was likely to pull forward first-home buyer demand and rental vacancy rates, Mr Kusher said.

“Investor demand is expected to remain weak and may weaken further over the coming months,” he said.

Investor lending is expected to remain weak during the pandemic and lockdowns. Picture:

“While we remain in the midst of a global pandemic and recession, many of the current indicators around housing are quite positive so don’t be surprised to see a stronger-than-expected result in lending over coming months.

“Whether that rebound is sustainable, especially as Melbourne heads back into lockdown remains to be seen.”

For first-home buyers, this was a 10.5{d872b83874cbc456d4e7e49f0ae218a6abf1c172c201c18bd21e1a6839859f06} drop – the second consecutive monthly fall and the lowest monthly value since October 2019, Mr Kusher said.

New lending to owner-occupiers buying a subsequent home also fell for a second month, down 10{d872b83874cbc456d4e7e49f0ae218a6abf1c172c201c18bd21e1a6839859f06} and the lowest monthly value in 12 months.

“The most difficult lending environment in 30 years”

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Sam Boer, chief executive of Smartline, said that despite record online search behaviour, it’s been “a very difficult period for the property market”, with factors such as open home restrictions and tenants unable to pay rent all leading to a sharp downturn in new lending activity.

“We believe this has been the most difficult lending environment in the past 30 years. It’s a perfect storm,” Mr Boer said.

“Lenders are asking for more information than they ever have in history, for every customer, regardless of whether they are new or existing clients. They are worried about people whose income may have reduced during COVID-19, so we have seen new processing checks and balances introduced.

Home agents are using a calculator to calculate the loan period each month for the customer.

Many mortgage holders have used the lockdown period to refinance. Picture: Getty

“In some cases, lenders have had to cancel loan approvals for clients that lost their jobs.” 

Mr Boer said the rapid rise in refinancing aligned with Smartline’s experience in April and May, which saw refinance submissions increase to more than 50{d872b83874cbc456d4e7e49f0ae218a6abf1c172c201c18bd21e1a6839859f06} of loan applications.

“We have seen many clients use the lockdown period as an opportunity to improve their position,” he said. 

For people in secure employment, now may be an excellent opportunity to enter the housing market or upgrade their property.

“Lenders are constantly changing their policies, rates and consumer offers and there is no time like the present to take action.”

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