First home buyers lead the charge for new home loans

New ABS lending data shows a modest uptick in new loan commitments in November with first home buyers leading the way.

First home buyers are fighting back against the rising cost of borrowing and are leading the charge for new loans taken out at the end of the Spring selling season, according to the latest ABS Lending Indicators data released on Friday.

A total of $27.58 billion in new home and investment property loans were taken out in November, up by a very modest 1.0% from October and 13.1% over the year.

Breaking this down, the value of new loan commitments for investors was rising higher than owner occupier borrowers. Investment lending increased by 18% to reach $9.72 billion while owner occupier new loan commitments were up only 10.6% over the year to reach $17.86 billion in loans.

However, it was first home buyer activity that stood out with a 25.8% increase in the value of new loan commitments for first-time buyers that saw the value of new loans reach $5.25 billion.

Canstar’s lending expert, Steve Mickenbecker says, “November showed a modest increase in new lending with the value of new loans written up by 1 percent for the month and just over 13 percent for the year.”

“Investors are up for the month by 1.9 percent, which compares to an increase of only 0.7 percent for owner occupiers. You could say investors are back, with new lending up by 18 percent year-on-year, suggesting they hold a healthy expectation for property prices over the coming few years.

“It’s first home buyers who are leading the way with new lending commitments up by 2.8 percent for the month and 25.8 percent for the year. Looking at the number of buyers, first home buyers’ participation represents 37 percent of all new loans.

“First home buyers have in recent years had to weather the impact of rate rises on borrowing power. Canstar’s analysis shows for the average income, a solo borrower has seen their borrowing capacity fall since April 2022 by $137,000 and likewise, a dual-income couple’s budget has been depleted by $331,000.
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source: www.canstar.com.au – 12/01/2023. Interest rate based on the average owner occupier home loan rate at Apr-22 on Canstar’s database, available for a $500k, P&I, 80%LVR loan; excluding introductory and other special condition loans. Today’s interest rate based on Apr-22 rate with cash rate increases since then applied. Gross income per ABS Average Weekly Earnings (Nov-21, May-23). Borrowing power calculations assume a loan term of 30 years, annual expenses of $21,840 for a single and $31,670 for a couple (based on the Household Expenditure Measure (HEM) for Australians earning $80,000 to $90,000 per year), 80% of income available to service the loan, and a 3% interest rate buffer. Tax calculations based on the 2023-24 Financial Year, excluding Medicare Levy.

“Purchase of a first home, especially in Sydney, is still a hefty challenge, but more buyers are breaking through the ground floor. Participation of 10,395 first home buyers is the highest since May 2022 when Reserve Bank cash rate increases started and is above the long-term average, boosted as it is by periods of high government incentives in 2009 and 2021.”

Existing borrowers getting complacent with higher repayments

Fewer borrowers sought out a better deal with a new lender in November despite the Melbourne Cup day rate rise. Just $17.49 billion in loans were switched to a new lender in the last month of Spring, which is a far cry from the $21.5 billion at the peak in July 2023.

Canstar’s analysis shows the 4.25 percentage point increase in the cash rate since April 2022 adds approximately $1,562 to repayments on a $600,000 loan over 30 years or $2,603 on a $1 million loan.

Mickenbecker says, “By refinancing just $17.5 billion in loans, Aussie borrowers are falling way behind the record $21.5 billion moved around in July 2023.”

“Borrowers may have decided they can live with higher repayments but there is no excuse for paying too much for your home loan when the best rate on Canstar is 5.69 percent, which is a huge 1.21 percentage points below the average variable interest rate at 6.90 percent.

“Making the switch could potentially reward a borrower with a monthly saving of $473 on a $600,000 loan, so there should be no complacency.”

Summary of the ABS Lending Indicators data for November 2023

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Source: www.canstar.com.au. Based on ABS Lending Indicators, seasonally adjusted figures unless otherwise indicated.

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