The full impact of the COVID-19 crisis has been reflected in the latest home loan approval data, with sharp falls in both owner-occupied and investor lending activity.
According to the Australian Bureau of Statistics’ (ABS) latest Lending Indicators data, the value of home loan approvals plunged 11.6 per cent (seasonally adjusted terms) to $16.4 billion in May – the largest fall in the history of the series.
This follows a 4.8 per cent decline in April, which was the sharpest fall since May 2015.
Approvals for owner-occupier loans fell 10.2 per cent to $12.2 billion, which, according to ANZ Research, eroded all growth recorded since July 2019 in response to the easing of APRA’s serviceability guidance.
Slumps in demand across NSW and Victoria drove the slide in the owner-occupied approvals, with the value of new loans falling by 18.7 per cent to $4 billion, and 6.8 per cent to $4.1 billion, respectively.
An even sharper decline was recorded for investor lending, down 15.1 per cent nationally to $4.1 billion – the smallest monthly value since 2002. This follows a cumulative decline of 7.9 per cent over the past three months.
According to ANZ Research, the COVID-19 crisis would continue to dampen demand for housing finance.
“We expect the pandemic’s effect on housing finance to linger, as borrowing capacity weakens for income-disrupted households, rental vacancies put downward pressure on investor returns and slow population growth dampens demand for housing construction,” the group stated.
However, Mortgage Choice CEO Susan Mitchell, who also expects demand for housing to face “many headwinds” in the coming months, said borrowers less impacted by the economic fallout would capitalise on lower housing costs.
“[Record] low home loan interest rates, government stimulus and grants will bolster demand for housing among consumers in a strong financial position in the near term,” she said.
Refinance approvals spike
Meanwhile, while demand for new housing finance has slumped, the value of external refinances for owner-occupiers surged, up 29.1 per cent to $21.7 billion.
ABS chief economist Bruce Hockman observed: “While reduced transactions in the housing market stifled new loan activity in May, the value of existing owner-occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers.”
Ms Mitchell agreed, adding: “Borrowers are understandably concerned about the economy and with most of us spending more time at home, people are taking the opportunity to review their household finances and find ways to save money.
“Adding to this, intense competition in the home loan market, with lenders trying to outdo each other with cashback offers and [record-low] fixed interest rates, is encouraging borrowers to rethink their home loan options.”
This is also reflected in the Australian Finance Group’s (AFG) latest mortgage and competition index, which reported that the share of refinance applications as a proportion of total lodgements increased from 28 per cent in the three months to March to 32 per cent in the June quarter.
The major banks, particularly ANZ and the Commonwealth Bank of Australia, have been the largest beneficiaries of the spike in refinance applications.
The AFG index reported that the big four’s collective market share increased from 57.5 per cent in the March quarter to 66.7 per cent.
[Related: ANZ, CBA win half of AFG broker lodgements]