Mortgage enquiry and approval figures suggest that, despite RBA rate cuts, Australia’s two-speed economy continues to be the overriding factor determining the state-by state demand for home loans

Some interesting statistics have been released in recent times regarding the state of Australia’s
mortgage market. Veda’s Quarterly Consumer Credit Demand Index for the final quarter of 2012, for example, indicates that mortgage enquiries remained flat – decreasing by 0.7% nationwide over the
course of the year – but that the state-by-state situation tells a varied story.

Judging by the Index’s figures, brokers in the Northern Territory and Western Australia may well have seen an increase in clients walking through their doors – with mortgage enquiries picking up by 12.6% and 11.1% respectively in these resource boom states. South Australia, too, saw an increase in mortgage enquiries towards the back end of 2012 (4.8%), while home loan enquiries in Victoria remained largely flat (0.5%).

At the bottom end of the scale, Veda’s figures suggest that brokers in Tasmania will have struggled to attract new business. Enquiries here fell by 7.6% between October and December 2012. New South Wales also saw a significant dip in home loan enquiries (-5.7%), while Queensland’s enquiry figures were also in negative territory (-2.8%).


So what can brokers take from the Index’s latest results? According to Veda, mortgage enquiries are a good indicator of homebuyer demand and housing turnover, with movements in mortgage enquiries tending to lead movements in house prices by around six to nine months.

“Housing markets have, in the majority, been weak  since late 2010,” said Angus Luffman, Veda’s general manager of consumer risk.

“There is little evidence in the latest Veda data that the RBA rate cuts are having much effect in reigniting housing turnover, with the level of mortgage applications staying flat since halting a two-year decline in the March 2012 quarter.”

“This generally soft mortgage applicant demand suggests that house price growth will be relatively
subdued for at least the first half of 2013.”


CommSec’s latest State of the States report, however, provides more heart-warming reading for the broker community. Rather than looking at enquiry activity, the report looks at settled loans in the form of ABS housing finance commitment data.

Its author, CommSec chief economist Craig James, does concede that nationwide trend housing finance commitments are below decade averages, but adds that “encouragingly, commitments in November were above year-ago levels in six of the economies”.

Once again, Western Australia was picked out as one of the mortgage markets with momentum on its side.

Home lending figures in WA were 10.9% higher than a year ago in trend terms, which signified a 37-month high. In long-term average terms, WA hit negative territory (-2.5%), but this still put the resources powerhouse in second spot for housing finance on the long-term scale.

Victoria was picked out as the strongest state on the long-term housing finance scale, with housing finance commitments coming in at 1.7% below the decade average level. Year-on-year commitments saw a 4.5% rise.

Third spot in the decade-average scale went to the ACT (-6%), followed by NSW (-12.4%). South Australiahit the bottom spot (-26.8%), but, with a figure of -26.7%, Tasmania was effectively neck-a-neck with the Festival State when it came to long-term housing finance commitment figures.


Despite the positive year-on-year housing finance commitment figures identified by CommSec, there is a growing mood that the RBA must implement further interest rate cuts to pull consumer sentiment out of the doldrums and spur Australians to take on mortgage debt.

The number crunchers at financial services researcher RFi, for example, have noted that housing credit aggregates grew by 4.7% over the year to October 2012 – which was 0.5% lower than the previous year’s figure – and have tipped the RBA to implement further rate cuts as 2013 unwinds.

“The continued deceleration of housing credit growth comes despite 1.5% of cuts to official interest rates by the RBA since November 2011, which has cut the average SVR [standard variable rate] by 1.15% over the same period. The slow growth in housing credit following the latest round of interest rate cuts suggests that monetary policy has lost some of its potency, which is likely to lead to further cuts in interest rates by the RBA in 2013, particularly as the mining boom unwinds,” said the RFi Australian Mortgage Market Wrap.

Various consumer sentiment scores underline the opinion that rate movements have yet to bring homebuyers out of the woodwork in earnest. The often-cited Westpac-Melbourne Consumer Sentiment Index, for example, may have just crept into optimism territory in January 2013 with a score of 100.6 (anything above 100 indicates optimists outweigh pessimists), but Westpac chief economist Bill Evans offered words of caution.

“This is the third consecutive month when the Index has been at or above the 100 level. That compares with 14 of the previous 16 months when the Index had registered below 100. However, having said that, it remains disappointing that despite a total of 175 basis points of rate cuts from the Reserve Bank since October 2011, the Index is only 3.5% above its level at that time,” he said.

“Indeed, following the first rate cut in November 2011, the Index surged by 6.4% to 103.4 in November 2011. Consequently the Index remains 2.7% below the level in November 2011 despite 150 basis points of ratecuts from the Reserve Bank.

“Since the Reserve Bank started cutting rates, respondents’ assessments of their finances has improved by a miniscule 1%.”


However, while Australians may not be full of optimism regarding their overall financial outlook, sentiment towards the property market’s prospects has seen some improvement.

“Over the last 12 months sentiment towards ‘whether now is a good time to purchase a house’ has been boosted by 11% (quarterly average). For the last four months, that Index has been near the highs of 2009 when house prices lifted by around 14% nationally,” said Evans.

“On the other hand, a special question which was included in the current survey around the outlook for house prices shows 45.6% of respondents expected house prices to rise over the next 12 months, while the same question a year ago showed a slightly higher 46.9% of respondents expecting prices to increase despite the cash rate having fallen by a further 125 basis points.”

When it came to the main categories of home loan applicant, Evans noted that upgraders and investors are responding to the lower rates in “a broadly comparable fashion to 2009”, while first homebuyers have remained reluctant to dip their toes in the property market.

“This is certainly partly due to less generous government subsidies, but may also be impacted by weaker overall confidence around finances and job prospects,” he said.

Support for this theory comes from ING DIRECT’s latest Financial Wellbeing Index, which found that 39% of Gen Y respondents – who might otherwise have been looking to enter the property market for the first time – are instead focusing on saving. Amongst all respondents who intend to save this year, 51% intend to build a spare buffer of cash, while 16% were worried about job security.

The Index also found that the Australian appetite for housing debt remains subdued, with 49% of respondents paying down their mortgage ahead of time and 28% of respondents being mortgage free.


When it comes to those Australians who do have a desire to take on mortgage debt, one telling figure highlighted by RFi was APRA’s assessment of the big four’s growing market share.

Within the ‘bank-held owner-occupied loans’ category, for example, the combined market share of themajors increased from 80.3% to 85.2%.

The RFi report does note, however, that the sudden increase “was largely due to APRA’s reclassification of Bankwest as a division of CBA, which officially went into effect on 1 October 2012”.

“As a result of the reclassification, CBA’s share of the owner-occupied home loans market grew from 23.5% in September to 28.4% in October 2012, while ANZ, NAB and Westpac’s penetration of the market remained steady,” said the report. “There was a lack of bank-held owner-occupied loans market share movement among the other lenders and the mutual banks.”

Overall, the banks took a 93.9% slice of owneroccupied lending commitments – a 1.3% increase on theprevious month’s figure.

The reclassification of Bankwest also saw the big four cement its grip on the ‘bank-held investment property lending’ category, with APRA’s figures showing the major banks’ share of this segment of the market rising from 82.8% to 85.6%.