Rate hikes takes further toll on borrowing activity

The bitter impacts of the succeeding rate hikes by the Reserve Bank of Australia (RBA) continued to suppress the appetite of borrowers for home loans in July.

Figures from the Australian Bureau of Statistics (ABS) showed an 8.5% decline in the value of new loan commitments for housing in July to $28.4bn, extending the 4.4% drop in June.

The value of new owner-occupier loan commitments fell 7% while the value of investor financing hit a more significant decline of 11.2%.

ABS head of finance and wealth Katherine Keenan said these values, however, still represent higher borrowing activity than prior to the pandemic.

“Although lending has fallen from historically high levels recently, the value of loan commitments remained significantly higher than pre-pandemic levels — owner occupier loans in July 2022 were 40% higher than February 2020, while investor loans were 78% higher,” she said.

Refinancing among owner-occupiers also fell, albeit at a slower rate of 1.9% to reach $12.4bn. This followed the record high level achieved in June.

Housing Industry Association (HIA) economist Tom Devitt said the sobering results highlight the impact of the rate hikes to lending demand.

“The rise in the cost of borrowing is compounding the impact of the rapid increase in the cost of building a new home that occurred due to the constraints on global supply chains,” he said.

The impacts were seen across all segments, with investors leading the decline.

July was the weakest month in over a year for investor lending while first-home buyers recorded their lowest level in over two years with a 9.5% decline.

“These declines in home lending are consistent with other leading indicators,” Mr Devitt said.

This coincides with the 13.1% slump in new home sales across Australia.

“This will see weaker sales volumes in the second half of 2022 — if these trends are sustained, which is expected, then the 1.75% increase in the cash rate so far will have brought this pandemic building boom to an end,” Mr Devitt said.

“There remains a significant volume of work under construction and approved-but-not-yet-commenced that will provide a buffer for the industry and ensure building activity and demand for skilled trades remains exceptionally strong through the rest of 2022 and into 2023.”

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