Rising rates, tax shifts cool home loan demand

New owner‑occupier loans declined 6.9 per cent in number to 82,453 and 4.3 per cent in value, and investor loans fell 5.3 per cent in number to 57,342 with a 3 per cent slide in value.

ABS head of finance statistics Dr Mish Tan said the quarter marked a clear shift after last year’s surge, with the decrease coinciding with the February and March cash rate hikes.

“Falls were recorded across all borrowers types this quarter, following strong growth throughout 2025 and cash rate rises in February and March,” Tan said.

Despite the quarterly pullback, Tan stressed that the level of activity was still historically strong, noting that total new home loans remain 8.6 per cent above a year earlier.

Bigger loans, fewer borrowers

The data also showed that loan values were growing faster than loan counts.

Tan highlighted that “annual growth in the value of new lending has continued to outpace growth in the number of loans, a trend we have seen since December quarter 2023”.

That pattern is also evident in the average loan size statistics, which point to ongoing price pressure in several markets.

Tan noted that “the average home loan size is now 9 per cent higher than a year ago at $724,415”, with stronger price growth recorded in Western Australia, Queensland, and South Australia.

For first home buyers (FHB), the average owner‑occupier loan rose 1.1 per cent, or $6,425, over the quarter to $614,048.

First home buyer momentum fades

FHB activity softened from the stimulus‑fuelled December quarter, suggesting policy support is struggling to offset rising borrowing costs and heightened uncertainty.

The number of new owner‑occupier FHB loans fell 4.3 per cent in the March quarter to 30,241, while the value of those loans dropped 6.7 per cent.

Within that segment, all states and territories recorded declines except the ACT, which posted a 6.5 per cent increase.

The steepest falls were in Victoria (-4.5 per cent), Queensland (-5.8 per cent), and NSW (-4.1 per cent).

Commonwealth Bank of Australia (CBA) senior economist Ashwin Clarke said the pullback needed to be read against a backdrop of rapid rate hikes and geopolitical shifts.

“The decline comes amid two rate increases from the RBA over the quarter, increased speculation about housing policy changes and uncertainty from the war in Iran in the March month, with activity likely concentrated later in the quarter following the summer holiday period,” Clarke said.

He said that FHBs were particularly exposed to this mix, despite targeted assistance measures.

“The decline in FHB lending signals that the tailwinds for FHBs from government policies are not offsetting the higher interest rates and uncertainty in the Middle East,” he outlined.

Investors face rate and tax headwinds

Looking ahead, major bank economists said the investment segment would be central as to how the lending cycle evolved, given the combination of higher interest rates and the federal government’s changes to tax settings for property investors.

“The housing market is facing challenges looking ahead. Interest rates are increasing and the winding back of tax benefits to housing investors is also expected to put downward pressure on housing prices,” Clarke said.

“These challenges are likely to see new lending ease further in the coming year along with an easing in housing prices and economic growth,” he said, adding that “investors will likely lead this easing, given they will be relatively more affected by the tax policy changes”.

Westpac economist Neha Sharma echoed the view that policy changes would reshape, rather than shrink, the investor landscape over time.

“Looking ahead, home lending is likely to enter a period of adjustment. Budget measures announced yesterday rebalance tax incentives away from leveraged property investment, while new build investments will receive a more concessional tax treatment than established homes,” Sharma said.

Sharma said she expected these settings to gradually alter the composition of investor lending, nudging more capital towards construction and new homes.

“This is expected to see investor lending volumes moderate over time and progressively shift toward loans for construction and new dwelling purchases.”

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