Banks are ready to deal as borrowing declines

The most recent ABS data released on lending to households and businesses provides sobering statistics on housing finance commitments according to the Housing Industry Association (HIA).

HIA economist Tom Devitt said the Reserve Bank of Australia’s (RBA) tightening cycle had 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.

“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, with a local broker saying it was quite the opposite.

Finance broker Daniel Walsh from UFinancial Torquay said the decline in housing loans, especially new lending for purchases and construction, meant banks were finding new ways to attract business and new customers.

“Limited time refinance cashback offers are being extended by most lenders, as much as $4,000-$6,000 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.

“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 indications, such as HIA’s New Home Sales Survey, showing new home sales dropped in July and August in response to higher interest rates.

Mr Devitt said if these trends were sustained, which is expected, then the 2.25 per cent increase in the cash rate so far would 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.

“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.”