Demand for finance for property purchases is likely to increase after falls in January; however it is likely to remain below levels seen in recent years.

Figures released last week by the Australian Bureau of Statistics revealed that owner occupier and investor demand for finance fell in the first month of the year, with housing affordability and tighter lending policies sighted as the main drivers for the slowdown.

According to the ABS figures, the value of owner occupier commitments fell by -4.3% in January, while investor commitments fell by -1.6%.

Overall, the value of housing lending fell 3.4% during the month of January, which CoreLogic RP Data research analyst Cameron Kusher said was the largest fall seen in the month of January since 2011.

While January may have been a down month for lending, Kusher said figures for February and March are likely to differ.

“We would expect that housing finance commitments will rise in February and so far March also points to increasing demand.  However, mortgage demand remains lower than it was at the end of last year and lower than it was a year ago,” Kusher said.

“While housing finance commitments should increase from their January levels it is unlikely that demand will start to grow as strongly as it was in the early part of last year or late in 2015,” he said.

For the investment lending market, Kusher agreed that changes to lending policies have had a marked effect on the demand for finance and he said that is likely to continue in coming months.

“The constraints on investment lending have been extremely effective and have resulted in a swift and significant pull-back in demand, in fact the value of investment housing finance commitments in January was -20.0% lower than its April 2015 peak,” he said.

“Although the CoreLogic Mortgage Index points to a rebound in demand over the coming months, we expect that growth in housing finance commitments will remain more subdued than what we saw over recent years.”

According to analysis by Kusher, investors currently account for 35.6% of all mortgage commitments, which extremely close its decade average after hitting a peak of 43.3% in May 2015.

While lending to owner occupiers fell in January, it was up on a year-by-year basis; however Kusher predicts that will also continue to moderate.

“Despite monthly falls, year-on-year all segments have seen an increase in lending with construction of new dwellings rising 6.1%, purchase of new dwellings up 35.6%, refinances up 36.0% and purchase of other established dwellings having increased by 4.8%.

“Although lending is up over the past year, there is a clear downwards trend in owner occupier lending, particularly for established dwellings, over recent months.  It will important to monitor whether this trend persists in coming months as it could point to slowing value growth.”