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Mortgage demand subdued despite spike in buyer sentiment

Australians increasingly believe it is the “time to buy” property, but the improvement in sentiment has not translated into a rise in demand for finance, according to Westpac research.

The Westpac-Melbourne Institute’s latest Consumer Sentiment Survey has revealed that buyer sentiment has hit a four-year high, with sentiment regarding the “time to buy a dwelling” improving by 4.1 per cent in January, up 7.7 per cent year-on-year to 114.8 index points.

However, Westpac senior economist Matthew Hassan said that the rise in buyer sentiment has not led to growth in demand for housing credit as a result of tighter lending standards.

“Ordinarily, the lift in buyer sentiment would be pointing to a lift in owner-occupier demand,” he said.

“However, the tightening in lending standards evident over the last year may mean prospective buyers find it more difficult to secure finance.”


According to Westpac, the improvement in buyer sentiment has been driven by the continued fall in dwelling values.

Mr Hassan noted that sentiment surrounding price growth has waned, pointing to the Westpac-Melbourne Institute Index of House Price Expectations, which fell by 4.1 per cent to 95.9 in January, the weakest it’s been since Westpac began publishing the index in May 2009.

“Weakness remains heavily concentrated in NSW and Vic, with state index reads of 76 and 83, respectively,” Mr Hassan added.

“Price declines are becoming firmly entrenched in expectations in these states with nearly three-quarters of NSW and Victorian consumers expecting prices to be unchanged or lower by this time next year.”

The Westpac economist observed that the decline in property prices may also be contributing to subdued demand for housing finance.

“This may also delay any demand feed through from the improvement in buyer sentiment as those looking to buy will be prepared to take their time in order to get ‘better’, i.e. lower, prices,” Mr Hassan said.

Moreover, the Westpac research revealed that, on the whole, consumer sentiment fell 4.7 per cent to 99.6 in January from 104.4 in December.

Mr Hassan added that the overall decline in sentiment would be a cause for concern for Reserve Bank of Australia (RBA).

“The weakening in consumer sentiment will be unsettling for the RBA given its concerns about downside risks to the outlook for consumer spending,” Mr Hassan said.

The economist claimed that the RBA is likely to lower both its 2018 and 2019 GDP growth forecasts from the “strongly above trend” 3.5 per cent and 3.25 per cent forecast it published in November.

Mr Hassan concluded: “We expect this tempered view on growth to also temper the banks’ attitude towards rates. Westpac continues to expect rates to remain on hold in 2019 and 2020.”

[Related: Post-RC tightening would dim hopes of housing recovery: KPMG]

Mortgage demand subdued despite spike in buyer sentiment

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