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Feature Article: Records Tumble For New Home Loan Commitments
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Jason Round

RECORDS TUMBLE FOR NEW HOME LOAN COMMITMENTS

 

Commitments for housing finance reached yet another historical record high in January 2021 with statistics from the Australian Bureau of Statistics (ABS) showing that the value of new loan commitments for housing rose 10.5 per cent over December to a record total amount of $28.75 billion, a massive 44.3 per cent year on year increase over January 2020. Finance commitments are up across the board, with increases recorded for first home buyers, owner-occupiers, construction loans for new dwellings and investors.

Investor Loan Commitments

Investors continue to return to the market, with loan commitments for investor housing showing a 9.4 per cent rise over December to reach $6.64 billion, representing a 22.7 per cent annual increase over January 2020. The number of investor loan commitments remains well below the peak of $10.55 billion recorded in April 2015 during the last property boom. The January result is comparable to the number of investor loan commitments recorded during 2018 and is well above the lowest number of investor loan commitments ever recorded of just $4.088 billion in May 2020. However, market conditions have improved in recent months with many investors are moving to take advantage of interest rates declining, easier access to money and improving market conditions across the country. As government incentives are eased, it is possible that investor activity will replace first home buyer activity in some sectors of the market such as master-planned communities.

The largest amount of investment activity was in NSW, which recorded a monthly increase of 6.7 per cent for a total of $2.806 billion in new investment loan commitments. Meanwhile, Victoria posted the largest increase in investor activity with a monthly increase of 12.9 per cent to a total of $1.717 billion in new investment loan commitments. Queensland posted a 5.5 per cent rise to reach a total of $1.127 billion in new investment loan commitments. All the other states and territories recorded slight increases in new investment loan activity as investors started to become more active across all markets. However, investor activity in NSW and Victoria remains the main driver behind the increased investment loan commitments.

The improving figures for investor loans indicate strong confidence in the fundamentals of the nation’s property markets and are a strong indicator that investors are returning to the market.

 

New Loan Commitments Jan 2021

 

Owner Occupier Finance

The value of new loan commitments for owner-occupied housing continues to increase for both existing dwellings and newly constructed dwellings. 

The total value of new commitments for owner-occupier home loans reached $22.11 billion in January 2021, which represented a month on month increase of 10.9 per cent and a significant 52.3 per cent increase over January 2020.

 

New Loan Commitments Total Housing Jan 2021

 

All the states and territories recorded increases in the value of new owner-occupier loan commitments.

Victoria once again recorded the largest increase, with new owner-occupier loans increasing compared to December by 12.9 per cent to $6.206 billion, reflecting a continued increase in buyer activity as Melbourne’s real estate markets bounce back from the COVID-19 induced lockdowns. We can expect the number of new loan commitments to continue to increase in Victoria in the next few months as the Victorian market continues to recover from the lockdowns.

Meanwhile, NSW recorded a record total of $6.798 billion in new owner-occupier loan commitments, a 6.7 per cent increase over December and continuing a surge that has seen record totals posted every month since August.

Meanwhile, all other states and territories also recorded increases over December with the Australian Capital Territory (up 19.59 per cent to $586 million) recording the biggest increase in housing finance commitments ahead of Northern Territory (up 15.5% to $104 million), South Australia (up 13.7 per cent to $1.134 billion), Western Australia (up 12.8 per cent to $2.467 billion), Tasmania (up 6.84 per cent to $328 million), and Queensland (up 5.5 per cent to $4.3 billion).

 

New Loan Commitments Owner Occupier

 

New dwelling loan commitments

Loan commitments for the construction of new dwellings showed a monthly increase of 15.7 per cent to reach $4.07 billion, up by a massive 141 per cent compared to January 2020. This upswing in commitments for new dwellings aligns with the Federal Government’s HomeBuilder Grant and is also supported by developers such as Stockland reporting record sales. Commenting on the figures, ABS Head of Finance Katherine Keenan noted that, “Since the HomeBuilder Grant was introduced in June 2020, there have been record rises in the value of construction loan commitments.” The figures for January are a reflection of the number of loan applications made in late 2020 as borrowers raced to finalise contracts to build a new home before the December 31 deadline to access the $25,000 grant. The grant reduces to $15,000 for applications made prior to March 31, 2021.

 

Loans for construction of new dwellings
Loan Commitments for new dwellings % increase

 

First Home Buyer Activity

First home buyer activity continues to surge, with a further significant rise in owner-occupier first home loan commitments recording a monthly increase of 10.1 per cent to reach a total of $7.16 billion over 16,664 new loans, a 73.2 per cent increase compared with January 2020. First home buyer activity represented 36.5 per cent of all new loan commitments for owner-occupied housing. The number of new loan commitments for investment purposes accounted for 4.4 per cent of all first home buyer activity.

The January result is the highest recorded for first home buyer loan commitments since the previous peak in April 2009, when 16,754 new first home buyer loans were recorded. The last surge in first home buyer loan commitments during 2009 was recorded following the Federal Government’s temporary tripling of the first home buyer grant as part of its response to the global financial crisis.

The largest number of first home buyer loan commitments was recorded in Victoria, which recorded a total of $5.076 billion, a monthly increase of 7.11 per cent. Other states and territories to record increases in first home buyer loan commitments were Northern Territory (up 21.35 per cent to $108 million; South Australia (up 16.85 per cent to $1.01 billion); Western Australia (up 11.46 per cent to $2.752 billion), Queensland (up 10.93 per cent to $3.64 billion), and the Australian Capital Territory (up 5.39 per cent to $352 million), while NSW and Tasmania recorded slight declines.

The significant amount of first home buyer activity is driven largely by government incentives, supported by cheap access to finance. First home buyer activity will likely reduce as the HomeBuilder grant comes to an end, but should still remain relatively strong through 2021 as finance will continue to be cheap and State Governments will continue to provide incentives to first home buyers.

 

New loan commitments to FHB Jan 2021

 

Summary

The record figures for housing finance commitments show no sign of slowing, with all sectors now recording strong monthly increases. The January figures show that the ceiling for new home loan commitments still hasn’t been reached and is a continuing reflection of improving consumer confidence in the Australian economy. The activity across all the home loan finance sectors is influenced by government incentives, very low interest rates and an easing of lending restrictions. The Victorian market continues to show the largest increases in monthly loan commitments as real estate activity in the state surges following the easing of COVID-19 restrictions. However, NSW and Queensland also recorded strong increases in new loan commitments for housing finance and the other states and territories also showed positive results.

The underlying indicators from the January results suggest that a property boom is now underway across all markets.

 

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