Home loan commitments bounced back in November 2021, says ABS

Highlights

  • The easing restrictions prompted borrowers to flock to the banks for new loans, especially for the purpose of housing financing.
  • The momentum in construction is yet to build up, which possibly explains why property prices are going out of control.
  • The value of loan commitments for owner occupiers rose by 7.6% in November, ending a six month-long dry spell.

With easing restrictions, Australians have also increased their palette for lending, most notably for the purpose of buying a house. The recent data from the Australian Bureau of Statistics (ABS) indicates that November 2021 saw improvement in new loan commitments in housing and personal fixed-term loans. The lifting of restrictions played a significant role in the recovery of home loan commitments. However, as much of the pent-up demand for housing dampens with time, this momentum might not continue in the coming months.

The ABS data suggests that the value of new loan commitments rose 6.3% for housing in November, while the increase in personal fixed-term loans was lower at 4.5%. On the flip side, business construction took a back seat, as new loan commitments for the segment fell by a massive 35.2%. One can say that the demand for mortgages is still going strong, creating pressure on the demand-side of the housing market. Consequently, housing prices may not take a breather anytime soon.  

Lending for dwelling construction yet to recover

Surprisingly enough, lending for the construction of dwellings has shown a sharp decline even as the housing market seems plagued with excessive demand. The entire previous year saw booming housing requirements in almost every major city within the country. A subsequent momentum in construction is yet to build up, which possibly explains why property prices are going out of control.

The new loan commitments for dwelling construction fell steeply by 27.9% in November 2021. This comes in sharp contrast to the rise in new loan commitments for owner occupier housing, which stood at 7.6% in November 2021.

 Soaring demand for property has exceeded its supply.

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Easing restrictions drove new loan commitments

Australia recorded loan commitments valuing a massive AU$31.4 billion for housing in November 2021. The month was especially significant as the rise in mortgage commitments came after a three-month decline in the indicator. Homebuyers currently hang in the middle of uncertainty, as an interest rate hike is feared over the coming months. Thus, many buyers quickly turned to mortgage financing as soon as restrictions were eased to make full use of the positive market scenario.

Notably, the value of loan commitments for owner occupiers surged, ending a dry spell that had been present in the segment since May 2021. Additionally, the average loan size for owner occupier reached its all-time high at AU$596,000 at the national level, categorically owing to booming property prices. New South Wales and Victoria were home to a vast majority of loan seekers, as property prices have been red-hot in both states.

Demand for owner occupier loans reached its 2021 peak in November.

Additionally, investor lending within the new housing loan commitments has also been steadily increasing for the past thirteen months. The highest increase in investor lending within the category was seen in New South Wales, where loan commitments rose 7.8%.

As dwelling construction is yet to pick up the pace, many homebuyers have flocked to the sale of existing properties. Property sellers are utilising the market boom and increasingly putting up houses for sale. Thus, mortgage demand for owner occupiers has proportionately increased, making new dwellings a less likely avenue for buyers.

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