Australian Property Market Observed a Surge in Loan Commitments in November

After recording the fastest quarterly growth in property prices in the last three months of 2019 and achieving optimistic November dwelling approvals data, Australia’s new loan commitments for housing surpassed the expectations in November 2019.

ABS has reported a rise of 1.8 per cent in the value of new loan commitments for housing in November last year in seasonally adjusted terms. The improvement in housing finance approvals was driven by expectations of lower interest rates level for a longer period of time.

Let’s take a closer look at lending indicators data released by the ABS:

Loan Values Climb in November 2019

As per the ABS Chief Economist, Bruce Hockman, the growth in the value of new loan commitments for housing was supported by owner occupiers.

Recording a sixth consecutive month of growth, the new loan commitments value for owner occupier housing jumped by 1.6 per cent in November.

In November, owner occupier first home buyers covered 29.7 per cent of new housing loan commitments to owner occupiers.

The number of loan commitments to owner occupier first home buyers declined by 0.9 per cent in November, subsequent to a fall of 0.4 per cent in October, marking its first back-to-back fall since January last year.

In addition to new loan commitments for owner occupier housing, the value of new loan commitments for investor housing also improved by 2.2 per cent month-on-month in November, well ahead of expectations of a 1 per cent increase.

It is worth noting that the value of personal finance fixed term loan commitments plunged by 1.4 per cent in November, following an increase of 2.2 per cent in October 2019.

Moreover, in trend terms, the value of new loan commitments to businesses for the purchase of property and for construction improved by 2.3 per cent and 0.3 per cent in November.

The ABS reported that, in trend terms, the value of business finance commitments for the purchase of property and for construction have continued to converge over the last 12 months, despite volatility in the seasonally adjusted movements.

First Home Loan Deposit Scheme to Boost Loan Values Further

Market experts expect a further rise in loan values in the coming months, driven by the Australian Government’s First Home Loan Deposit Scheme launched on 1^st January 2020.

The scheme intends to help eligible first home buyers to buy a home more quickly by offering a guarantee that will enable low and middle income-buyers buy a home with a deposit of just 5 per cent.

However, it is imperative to note that the lender's criteria still apply.

The guarantee is being provided by the National Housing Finance and Investment Corporation (NHFIC), which is offering a guarantee of up to 15 per cent of the property’s value.

The scheme is targeted to support up to 10,000 home loans every financial year, out of which around 3,000 possible first home buyers have already been registered by the banks. The remaining 7,000 places are likely to be available from 1^st February 2020, with prospective applicants having a broad panel of twenty-seven lenders to select from.

At present, both National Australia Bank (ASX:NAB) and Commonwealth Bank of Australia (ASX:CBA) are offering guaranteed loans to first home buyers. The banks are charging comparatively lower interest rates to customers availing loans under the scheme.

Moreover, NHFIC has created a tool to assist first home buyers to ascertain their eligibility for the scheme and determine the housing price threshold for the suburb in which they are planning to buy a property.

As couples earning $200,000 a year and individuals earning up to $125,000 a year are eligible under the scheme, the experts expect the scheme to benefit those earning near the top limit of the threshold. The expectation lies on the belief that higher income first home buyers can save the 5 per cent deposit more quickly than others.

Amidst a significant recovery in property prices, dwelling approvals and now lending commitments, it would be interesting to keep a watch on the direction of the Australian housing market going forward.

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