The latest Commonwealth Bank of Australia lending data showed new home loans, excluding refinancing, picked up in January after falling sharply in December

Without releasing exact figures at this stage, CommBank said the slight rebound last month pulled the annual rate back into positive territory for the first time in almost two years. 

The bank, which commands the largest mortgage market share in the country, noted “some relative strength” in owner-occupier lending in NSW and WA. 

Similar to previous months, no new fixed-rate housing loan commitments were signed in January, with borrowers likely avoiding being saddled for years with high-interest payments as the cash rate, as of February, currently sits at its current peak of 4.35%. 

“Among the very small share of home borrowers at fixed rates, more than two-thirds are fixed for just one year,” CommBank economist Stephen Wu said. 

During the first two years of the pandemic, when the cash rate hit 0.1% (the standard owner-occupier variable rate was 4.52%), more than 40% of new loans at CommBank were at fixed rates. 

However, since the RBA began hiking rates in May 2022, only 7.5% of new home loans are at fixed rates. 

Interest payments weighing on borrowers

It appears more borrowers signed on new mortgages to finance interest payments as CommBank found interest charged as share of the credit stock rose in January. 

According to Mr Wu, this may be “reflecting a combination of the continued pass-through of the November RBA rate hike as well as the ongoing fixed-rate home loan expiry schedule”. 

RBA’s latest rate hike in November brought the standard variable rate for owner-occupier home loans to 8.77%. 

Although the Reserve Bank decided to keep the rates unchanged during the Board’s recent meeting, home loan rates are beginning to trend lower in anticipation of rate cuts beginning mid-2024. 

Despite high interest rates substantially reducing borrowing capacity, mortgages for first home buyers reached a new peak in 2023, ANZ researchers found. 

Meanwhile, the average loan size of new other owner-occupier loans was just 0.7% below its 2021 peak. 

Lending was strongest in Queensland, SA, and WA over the year prior. ANZ economists were quick to note, however, that growth in these states was driven by investor home loans rather than owner-occupiers. 

More investor home loans signed in states whose capital cities recorded the most critical vacancy rates (Brisbane at 0.86%, Adelaide at 0.78%, Perth at 0.76%) suggest the nationwide rental supply shortage was also driving lending upwards.

Of all the states, ANZ found only Victoria saw higher growth in residential lending compared to investors’, “perhaps due to slightly higher vacancy rates and slower population growth”, according to senior economist Adelaide Timbrell. 

These findings reinforce the industry’s view that the surge in homebuyer activities amid high interest rate environment and dwelling values is buoyed by renters transitioning to homeownership. 

“Strong rental inflation and persistently low vacancy rates may drive more investors into the market,” Ms Timbrell said.

CommBank economist Harry Ottley likewise said earlier, “Lending to first home buyers may have been supported by the extremely tight rental market and consequent higher rents.” “Worsening affordability may also be incentivising first home buyers to act sooner to avoid prices rising further.”

Increasing house prices squeeze borrowers

Following 12 straight months of gains, properties across the nation currently sell 8.7% higher than last year, with Perth, Brisbane, Sydney, and Adelaide posting the biggest annual leap.  

Driving the prices up was the widening gap between demand and supply, further exacerbated by the ongoing rental crisis and migration-driven population growth.  

Nationally, the median property value currently sits at $759,437. 

First home buyers, owner-occupiers, and investors may have to borrow more to finance repayments as ANZ expects capital city housing prices to further climb by 5-6% in 2024 and around 5% in 2025. 

“Brisbane, Perth, and Adelaide are likely to outperform other cities due to the possibility of longer running shortage of available homes,” ANZ senior economics Blair Chapman said. 

“Sydney and Melbourne prices have lost momentum and are still below their previous peaks, though increases in auction clearance rates in both cities this year suggest momentum could strengthen a little.”

The bank economists, however, noted that monthly housing price growth has cooled to 0.5% month-on-month over the six months to January, suggesting prices will stabilise soon. 

And the recent sharp drop in sales volumes is expected to put a limit on lending growth in the near term, they said.

Household income to cover increasing mortgages – but is it enough?

Ms Timbrell and Mr Chapman anticipate the lift in household incomes (supported by fiscal and monetary policy) will be enough to support prices from late 2024 onwards. 

RBA analysis also suggests nearly every household (94%) with a variable home loan has enough income to pay their mortgages and essentials. 

Of the remaining 6% with income shortfall, more than half have over two years’ worth of savings to cover the difference between their income and expenses. 

“This highlights how key the resilient labour market in Australia is to indebted homeowner’s financial stability, as these buffers would be far smaller without ongoing employment income,” Mr Chapman said. 

The latest ABS wage price index showed salary in Australia grew 4.2% over the last year. 

Despite wages rising faster than inflation, a new research found more than 30% of mortgage holders were ‘at risk’ of ‘mortgage stress’.

A borrower is under mortgage stress if 30% of their gross monthly income goes to their repayments.  

“The figure for December represented the highest level of mortgage stress for three months as the impact of the interest rate increase flowed through,” said Michele Levine, chief executive officer of research firm Roy Morgan.

At the moment, savings buffer and access to the bank of mum and dad are helping homeowners prevent defaulting on their repayments, with home loan delinquencies remaining low, according to ANZ research.

Photo by Alexander Tencio on Pexels