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Concern raised as lending commitments continue to rise

The total value of home loan commitments continues to rise month-on-month, largely driven by owner-occupiers. However, increasing loan sizes flag concern for a country already inundated with household debt, according to ANZ.

According to new data released by the Australian Bureau of Statistics, the value of new home lending commitments rose 1.1 per cent (in seasonally adjusted terms) in September, following on from a 3.8 per cent rise in August.

Further, new lending commitments are now up 5.6 per cent (seasonally adjusted) when compared with September 2018, the first positive year-on-year result seen since mid-2018.

The increase was largely driven by a 3.2 per cent increase in lending to owner-occupiers excluding refinancing, as well as a 7.7 per cent rise in personal finance excluding refinancing.

Lending commitments for investors fell by 4.0 per cent in September, followed by a significant 6.5 per cent jump in August and continued to trend upward.

The ABS data also showed a decrease in lending commitments to first home buyers of 1.9 per cent, seasonally adjusted, the first fall this year.

First home buyer figures are down 6.8 per cent compared with September last year, before interest rate cuts and serviceability changes were introduced.

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This suggests that as the market is heating up, first home buyers are once again priced out.

According to ANZ Research, these results appear to indicate that the Reserve Bank of Australia’s cuts to the official rate cuts are stimulating increasing property demand, but noted that while the property market is experiencing growth, these measures have done little to encourage household or business spending.

With little other stimulus into the economy bar the RBA’s monetary policy, conditions appear precarious for Australians already inundated with record-high levels of household debts, which could be further compromised in the event of future rate cuts.

According to ANZ Research authors Adelaide Timbrell and David Plank: “Housing is responding much more sharply to recent rate cuts than either household spending or business conditions. 

“The resultant upward pressure to our already high household debt weighs on household spending, and may make Australian households more vulnerable to an economic shock.”

Elsewhere, the report states: “The sharp recovery in mortgage demand is a concern for the RBA, which needs to balance the potential stimulatory effects of further rate cuts with risks to financial stability.”

[Related: Rates heading to 0.25% despite ‘upbeat’ RBA]

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