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The latest date on mortgage lending volumes reveals the weakest August numbers since 2019, and also show low deposit loans are proving harder to get.
The total lending flow of $5.4 billion was significantly lower than the same month last year ($8.2 billion), and was the lowest figure for the month of August since 2019.
More significantly there were just 15,109 loans made and this was the weakest number since 2013.
CoreLogic says investors and owner-occupiers are struggling, with lending continuing to fall in recent months.
Its buyer classification data has shown a similar pattern in recent months, albeit with some signs of a pick-up for first home buyers lately.
Gross mortgage lending flows remained soft in August, with low-deposit finance hard to secure –just 0.7% of investors got such a loan last month (excluding new-builds), and 4.1% for owner-occupiers.
A cautious attitude towards low equity loans isn’t hard to understand in an environment where property values are still falling, Corelogic chief property economist Kelvin Davidson.
More generally, after a period where mortgage rates showed signs of a peak, the renewed increases in the past week or so will remain testing for new borrowers, and those rolling off older fixed loans.
Given that property sales data for August has already been available for a few weeks now –and it remained very weak –there were no surprises to see that gross mortgage lending activity (across new loans, top-ups, and bank switches) was also sluggish last month.
Davidson says there were hints that a pick-up for interest-only (IO) lending has helped some investors purchase property in the past few months.
However, it is likely to be light relief for investors.
“Given the removal of interest deductibility for purchasers of existing property, there’s now more of an incentive for investors to repay some principal.”
He says that low deposit mortgages remain very difficult to secure. After exemptions (eg: new-builds), just 0.7% of investor loans were approved with less than a 40% deposit in August –versus the speed limit of 5%. And only 4.1% of owner-occupier loans had <20% deposit, against the speed limit of 10%.
“Given continued falls in property values, it’s not hard to understand a cautious attitude from the banks when it comes to approving loans to borrowers who already have lower equity levels.
“With housing affordability still stretched and mortgage rates higher, it’s likely that fewer borrowers really want a high LVR loan either.”
Davidson says the looming pressure for the mortgage market is that many borrowers roll off previous low interest rates onto a much higher repayment schedule.
The scale of this ‘refinancing wave’ isn’t as big as it used to be –currently 44% of existing mortgages (by value) are fixed and due to roll over in the next year, which is well down from the peak of 66% in June last year, and back down to levels last seen in early 2018.
“Anybody rolling onto new rates will still be seeing a large change in their repayments, given the sharp increases since the middle of last year.
While the interest rate cycle is closer to its peak than the trough, there is still likely to be increases, despite strong competition amongst the banks.
“It’s encouraging that most borrowers seem to coping pretty well –helped by low unemployment.
“The Reserve Bank data suggests that lenders haven’t felt the need to increase their provisions for bad debts too much, and just 0.2% of loans are non-performing.
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This is either due to the effects of the CCCFA, or banks have run out of the cheap money and are trying to increase their margins on existing lending.
The decline of some proposals is downright illogical and frustrating. It certainly doesn't meet the code of "working in the best interests of the client".