Home loan volumes remain low

The number of loans in August is the lowest in three years.

Wednesday, October 5, 2022, 6:00 a.m.

The latest date on mortgage volumes reveals the weakest August figures since 2019, and also shows that low-deposit loans are proving more difficult to obtain.

The total loan flow of $5.4 billion was significantly lower than the same month last year ($8.2 billion) and was the lowest figure for August since 2019.

More importantly, only 15,109 loans were granted and this is the lowest number since 2013.

CoreLogic says investors and homeowners are struggling as lending has continued to decline in recent months.

Its buyer classification data has shown a similar trend in recent months, although with some signs of recovery for first-time home buyers lately.

Gross mortgage flows remained weak in August as low-deposit finance was hard to come by – just 0.7% of investors secured such a loan last month (excluding new builds) and 4.1% for homeowners occupants.

A cautious stance toward low-capital lending isn’t hard to understand in an environment where property values ​​continue to fall, Corelogic’s chief real estate economist, Kelvin Davidson.

More generally, after a period when mortgage rates showed signs of peaking, the new increases over the past week will continue to test new borrowers and those leaving old fixed loans.

Given that August home sales data has already been available for a few weeks now – and has remained very weak – it was no surprise to see that gross lending activity mortgages (new loans, top-ups and bank transfers) was also slow last month.

Davidson says there were hints that a recovery in interest-only (IO) lending has helped some investors buy property in recent months.

However, this should be a slight relief for investors.

“Given the removal of interest deductibility for purchasers of existing property, investors now have a greater incentive to repay some of the capital.”

He says low-deposit mortgages remain very hard to come by. After exemptions (eg new construction), only 0.7% of investor loans were approved with less than 40% down payment in August – against the 5% speed limit. And only 4.1% of homeowner loans had

“Given the continued declines in real estate values, it is not difficult to understand a cautious attitude on the part of banks when it comes to approving loans to borrowers who already have lower equity levels.

“With housing affordability still tight and mortgage rates higher, it’s likely that fewer borrowers really want a high LVR loan either.”

Davidson says the looming pressure on the mortgage market is that many borrowers are abandoning previous low interest rates for a much higher repayment schedule.

The magnitude of this “refinancing wave” is no longer as large as it once was: currently 44% of existing mortgages (by value) are fixed and due to be rolled over next year, which is well below the peaking at 66% in June last year, and falling back to levels last seen in early 2018.

“Anyone adopting new rates will still see a significant change in their reimbursements, given the large increases since the middle of last year.

Although the interest rate cycle is closer to its peak than its trough, increases are still likely, despite strong competition between banks.

“It’s encouraging to see that most borrowers seem to be doing quite well, helped by the low unemployment rate.

“Reserve Bank data suggests that lenders have not felt the need to increase their provisions for bad debts too much, and only 0.2% of loans are not performing.

Tags: CoreLogic

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Priscilla C. Carnegie