The value of new home loans falls as interest rates rise

Rising interest rates are making home buyers less willing to borrow, while at the same time house hunters are seeing their ability to borrow reduced.

The value of new home loans fell by $1.41 billion to $30.97 billion in June, according to the Australian Bureau of Statistics.

Loans to homeowners fell $707.4 million, down 3.3% from the previous month, in seasonally adjusted terms.

Investor loans also fell by $707.0 million, down 6.3% this month, but are still up $1.54 billion, or 17.3%, from one year ago. research director Sally Tindall said property buyers are currently sitting on the sidelines waiting for property prices to fall further.

“The value of new home loans will likely continue to decline as the housing market cools,” Ms Tindall said.

“A lot of people who were looking to buy a home have put their house hunting plans on hold and are waiting for prices to drop further before they get started.”

The number of new first-time homeowner loans also fell 8% month-on-month in June.

In dollar terms, the decline in first-time home loans was even larger, down 10%, reflecting falling house prices.

Ms Tindall said while buyers sat and waited, rising interest rates were also reducing the borrowing power of many home hunters.

“Seeing house prices drop can be a welcome relief to first-time home buyers who have been virtually shut out of the market over the past year due to soaring house prices,” said- she declared.

“However, first-time home buyers will also find that the amount the bank is willing to lend them has also fallen and will continue to fall as rates rise, which could once again force them out of the market.”

The national average new loan size for owner-occupied homes continued to decline, down 0.86% ($5,265).

Monthly declines were recorded in New South Wales, Victoria, Queensland and Tasmania, while all other states and territories increased.

Notably, the proportion of fixed loans funded in June was just 9%, in seasonally adjusted terms, and comes as banks are rapidly raising fixed rates, both for new loans and for refinancing.

At the July 2021 peak, 46% of all new loans were fixed.

Ms Tindall said the majority of fixed rates from big banks now start with a ‘5’ or even a ‘6’, pushing borrowers back to variable loan products.

The value of new loans refinanced abroad increased by $1.06 billion, reaching $18.16 billion in June, the highest value on record.

Ms Tindall said there had been an increase in the number of borrowers refinancing their home loans, trying to find a better deal to fight off Reserve Bank rate hikes.

“As home loan rates have risen, many banks are offering better rates for new customers and deep cashback for borrowers looking to refinance,” she said.

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