Home loan approvals soar while first home buyer proportion sinks

It’s a tale of two cities: Home loan approvals in September were the highest since October 2009 – yet the month had the lowest proportion of first home borrowers in two decades.

Figures from the Australian Bureau of Statistics show that the first quarter of the financial year had 12% national growth in loan approvals over the previous year and 13% year on year growth for September.

This comes on the back of record low interest rates, high clearance rates and a boost in the number of properties for sale.

However, increased investor activity – and a noticeable rise in cashed-up foreigners – has forced first home buyers out of the race, with their numbers falling from 13.7% of buyers in August to 12.5% in September.

The proportion of first home buyers in the number of owner-occupied housing finance commitments is now one in eight – the lowest since data was collected in July 1991, the Real Estate Institute of Australia says. It is far lower than the long-run average of 20.15%, despite eight interest rate cuts since November 2011.

In contrast, owner-occupied finance approvals rose 12.6% for the 12 months to September and investors took out 5.2% more loans in September than in August.  

“With the proportion of first home buyers at historic lows and figures indicating no bubble in lending, the Reserve Bank Board should be taking a ‘steady as she goes’ approach in December,” said REIA president Peter Bushby.  

Changes to the first home buyers’ grants – which in Victoria is $10,000 for the purchase of new homes after July 1 this year but none for established homes – is being blamed for keeping first home buyers behind the eight ball. Pressure on them is further compounded by investors having greater equity in existing property and being able to borrow more at cheaper rates – without the need for mortgage insurance.  

But state treasurer Michael O’Brien said loan approvals for new dwellings in Victoria were the highest of any state. “Victoria contributed 29% of national loans for new dwellings in September which is above its population share of 24.8 %.

“The Coalition government is supporting first home buyers by increasing grants for new homes and bringing forward a major cut in stamp duty.

“Since July 1, more than 6,500 new home buyers have received the stamp duty concession, which amounts to almost $36 million in benefits to first home buyers.

“Targeting the first home owner grant to newly constructed homes – whether in regional Victoria, Melbourne’s growth corridors or new CBD apartments – will stimulate the economy and create jobs in the construction sector.” He said the move “brings Victoria into line with New South Wales, Queensland and South Australia”.

Loan Market director Mark De Martino said that the first quarter of the financial year was off to “a very hot start” with low interest rates and a recovering property market helping boost activity in the home finance space.  

“Nearly every state is showing double digit growth for the first quarter” De Martino said.  

The 51,938 home finance approvals in September were a rebound from the August figures which saw the first month-on-month drop in approvals in 45 months.  

High auction clearance rates this spring point to a continuing upward trend in market activity.  

De Martino said pre-approvals were helping buyers get a ‘leg up’ over the competition at auctions, although he agreed first home buyers were struggling to enter the market. “As the prospective pool of buyers grows, it’s only a matter of time before first home buyers return. 

“They are competing with cashed-up investors and upgraders who have significant equity in their properties. Building a sizable deposit and understanding their borrowing power with pre approval will give them the best chance to compete in this market.”  

Number of Home Finance Commitments September 2013: ABS  

 This article first appeared on Property Observer.