Banks are ready to deal as borrowing declines

The most recent Australian Bureau of Statistics data released on lending to households and businesses provided sobering statistics on housing finance commitments according to the HIA.

HIA economist Tom Devitt said that the RBA’s tightening cycle has pushed down the total value of housing loans by a further 3.4 per cent in August.

“The decline in August brings the value of housing loans to its lowest level in almost two years, down by 15.4 per cent on three months earlier,” said Mr Devitt.

“The number of loans for the construction or purchase of new homes also declined by 4.5 per cent in August, to its lowest level since the March 2020, the first month of the pandemic in Australia.”

But this news does not necessarily mean bad news for borrowers, quite the opposite says local broker.

Finance broker Daniel Walsh from UFinancial said that with the decline in housing loans, and specifically new lending for purchases and construction, banks are finding new ways to attract business and new customers.

“Limited time refinance cashback offers are being extended by most lenders, as much as $4000 to $6000 with some banks, and the competition between lenders is at an all-time high, with most banks continuing to cut their variable rates to attract refinance and new customers,” Mr Walsh said.

“Banks will always find a way of generating new business, regardless of economic or property markets conditions.”

This recent data is consistent with other leading indicators, such as HIA’s New Home Sales Survey, that’s showed new home sales dropped in July and August in response to higher interest rates.

Mr Devitt said that if these trends are sustained, which is expected, then the 2.25 per cent increase in the cash rate so far will have brought this pandemic building boom to an end.

“There is still a significant volume of work under construction that is driving economic activity across the economy and keeping the unemployment rate at exceptionally low levels,” he said.

“When this pool of work is completed, the full impact of this rate rising cycle will emerge.

“There remains a risk that this volume of ongoing work will obscure the adverse impact of rising interest rates.

“These treacherous lags that characterise this housing cycle could result in the RBA weighing too heavily on household finances and jeopardising the housing industry’s future soft landing.”