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Lending Plunges Further

Posted on 18 February 2019

Source:  Australian Property Jornal - Liz Jordan

HOUSEHOLD lending continued to fall in December, with numbers down across owner occupier and investment dwelling segments as the residential market continued to weaken.

Official data released showed the seasonally adjusted value of new lending commitments for investment dwellings plummeted by 27.8% year-on-year, and by 16.2% for owner occupiers.

Seasonally adjusted, total lending to households came in $32.025 billion. There was a 5.9% decrease in December to $17.387 billion lending to households for dwellings, excluding refinancing, for a 19.8% annual drop.

The figures were softer than UBS expected, prompting the firm to downgrade its forecast of a 10% peak-to-trough fall in house prices to 14%. It also hardened its expectations for home loans to a peak-to-trough fall of 25% with a rising risk of 30%.

NAB chief economist, Alan Oster yesterday said dwelling investment is expected to fall by almost 20% over the next two years, while the major lender altered its forecast for the next interest rate move to beyond its previous expectations of late 2020.

Capital Economics warned late last year that the "full effect of tighter lending conditions on houses prices hasn't been felt yet".

ABS data showed the number of new lending commitments to owner occupiers was down 6.4% over December, and 4.6% for investment dwellings, for a combined 4.4% fall. That followed a drop of 2.4% in November.

"The slowdown in lending for investor dwellings this month continues the steady decline over the past two years, with the value of new investor loan commitments down around 40 percent from the peak at the start of 2017," ABS chief economist, Bruce Hockman said.

"The slowdown in lending for owner occupier dwellings is more recent, with falls concentrated in the last half of 2018."

The number of loans to owner occupier first home buyers was down by 12.6% year-on-year, while loans to owner occupier non-first home buyers fell 15.5%.

Tasmania's 4.2% growth in the value of lending for owner occupier dwellings over December was the only increase across the country. Values fell in New South Wales (by 6.1%), Victoria (6.6%), Queensland (9.9%), Western Australia (6.3%), the Australian Capital Territory (4.9%), the Northern Territory (18.3%) and South Australia (1.0%).

Tim Reardon, HIA's principal economist, said the slowdown in the market began with restrictions imposed by APRA on investors several years ago, and had been exacerbated with tighter lending conditions imposed by banks during 2018.

"This downturn is long been forecast but there are ongoing risks regarding its length and depth."

He said the decline in investor activity would turn around quickly when home prices stabilise, and that the longer term outlook for the market remains solid while the unemployment rate and population growth remain at current levels.

Approvals have continued to suffer in the uncertain lending environment. Apartment approvals tumbled by 38.0% over 2018, dragging overall dwelling approvals down to a 22.5% fall. Just under 14,000 dwellings were approved in December, down 8.4% over the month.

Yesterday's data showed lending to households for personal finance, excluding refinancing, fell 2.9% and 15.2%, while lending to business was down 9.7% in December to $30.68 billion, 6.2% below levels one year earlier.

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