New lending slows as rate hikes take toll

For the third consecutive month, first home buyers have retreated from the market as the value of new lending to the group plummeted 5.7 per cent in November to $3.87 billion, coinciding with a 5.5 per cent fall-off in first home buyers entering the market. 

As rates have risen, Australians’ borrowing power has headed in the opposing direction. Analysis from Canstar indicates that since April, borrowing power has decreased by 24 per cent among both single- and dual-income purchasers on average gross incomes. 

A solo buyer with an average income of $92,030 has watched their purchasing power diminish by $135,000 from $568,000 in April to $433,000 in November. Meanwhile, those on a dual income, able to purchase a $1,310,000 property in April, experienced a purchasing power reduction equivalent to $312,000. 

In addition to this, the seven-month period between May and November 2022 saw borrowers face a 38 per cent increase in home loan repayments, adding more than $800 to repayments on a $500,000 loan over 30 years or more and double that for a $1 million loan over the same period. 

Canstar group executive Steve Mickenbecker said these repayment rises are “draining household budgets, which will be stressing borrowers individually, but collectively will meet the goal to drive down household spending and take the steam out of inflation”.

He explained home lending decreases have been felt most among first home buyers (down 29.2 per cent), adding “the number of first home buyers has halved from the January 2021 high”. 

Mr Mickenbecker said the “rate increases are doing their job in slowing new lending and stalling the property market, with November lending down by 21.3 per cent from April”.

However, he noted that “slower lending is yet to flow through the lower inflation, and the 7.3 per cent inflation rate for the year to November will have disappointed the Reserve Bank, making a further 0.25 per cent increase in the cash rate likely in February”. 

Hayden Groves, president of the Real Estate Institute of Australia (REIA), holds the opposing position. Last week, he cited the ABS’ consumer price index (CPI) for November as reason for the RBA to pause cash rate increases when they meet next month.

In the current climate, Mr Mickenbecker highlighted refinancing reached all-time highs during 2022’s penultimate month, though he noted it “remains disappointingly modest relative to the magnitude of loan outstandings and in the face of such rapid rate increases”. 

“Refinancing from the average variable rate of 5.67 per cent into a lower rate loan of 4 per cent can give repayment relief by cutting just over $500 from monthly repayments by making the switch,” he said.

In addition to lending decreases, ABS data also revealed building approvals fell in the 12 months to November last year, with Thomas Devitt, economist at the Housing Industry Association (HIA), positing this indicates “builders have worked through much of their large pipeline of work that existed in May 2022”. 

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