Owner-occupiers fuelling lending bounce

The Australian Bureau of Statistics’ (ABS) latest Lending to Households and Businesses data has reported a 0.2 rise in the value of housing finance commitments in April, following a 1.2 per cent decline in the previous month.

The bump in housing finance commitments was driven by growth in the value of owner-occupied lending, which increased by 1 per cent over the month, recovering from a 3.4 per cent slide in March.

Reflecting on the data, ANZ Research observed that the uptick was a sign that “green shoots” are appearing in the mortgage market.

“While annual results are still showing substantial declines (17.3 per cent) in the value of housing commitments, these declines have been shrinking in the last few months,” the research agency noted.

However, despite the spike in the value of owner-occupied lending, the value of housing finance to investors continued falling, dropping by 2.2 per cent in April following on from a 2.7 per cent decline in March.

ANZ attributed weakness in investor finance to “pre-election and holiday effects”, adding that it is “not likely to represent a renewed downward trend”.

While the value of housing finance increase, the total number of finance commitments dropped 1.1 per cent, albeit less pronounced than the 2.8 per cent fall in March.

The ABS data also reported a decline in construction activity, with the number of finance commitments for the construction of dwelling falling 5.2 per cent in April.

Geordan Murray, chief economist at the Housing Industry Association, observed: “Softer lending in the segment is consistent with the drop in new detached house sales in the major east coast markets over recent months.”

Mr Murray expects the decline in the number of commitments to continue throughout May as a result of pre-election uncertainty, but he said recent political and economic developments could help trigger a rebound.

“There has been a marked improvement in housing market sentiment in the weeks following the federal election,” he said.

“When combined with the RBA’s rate cut and the prospect that APRA may allow lenders a greater degree of flexibility in assessing loan serviceability, there is cause to be optimistic that lending activity could improve as the year progresses.”

Maree Kilroy, economist at BIS Oxford Economics, agrees: “The recent RBA rate cut combined with the imminent easing of APRA serviceability guidelines is a positive for dwelling investment.

“We expect further rate cuts before the year’s end. This will materialise positively in the lending data for established dwelling loans in another three to six months.”

[Related: Mortgage repayment pressures ease nationwide]