New lending to investors has been on the rise, with a 6.2% increase in May 2023. This indicates that property buyers are becoming increasingly active in the market, despite the 12 interest rate rises since May 2022. On the other hand, lending to owner-occupiers saw a more modest increase of 4%.
These new loan commitments have brought lending volumes to a level that is 45% above the recent low in June 2020, when it dropped to $17 billion. However, it is unlikely that new commitment volumes will return to the highs seen in 2021 when rates were at historic lows. The recent increases in May and March suggest that property seekers are still willing to enter the market despite the high lending rates.
It is worth noting that the number of new commitments and the total dollar amount are higher than pre-pandemic levels in February 2020. The total loan dollar amounts are now $5.6 billion higher, representing a 29% increase.
First-home buyers are also starting to return to the market, with $1.4 billion in loans written in May, a 5.5% month-on-month increase. However, lending to first-home buyers peaked in January 2021 when $7 billion of new loan commitments were approved. Since then, first timers have been dropping out of the market as prices have skyrocketed.
In December 2020, new commitments for first-home buyers accounted for 25% of all loan approvals, higher than those from investors. However, as the prices began to rise by approximately 2% per month, first-home buyers started reducing their commitments. This indicates that prices have become out of reach for many first-time buyers.
Comparing the PropTrack Home Price Index with the loan commitments for each buyer type, it is clear that both investors and other owner-occupiers continued to borrow throughout 2021, but slowed down in the lead up to the first interest rate rise. In mid-2021, first-home buyers overtook investors in terms of the share of new lending, thanks to the popularity of the HomeBuilder Grant and record-low borrowing costs. However, once the grant period ended, there was a significant drop in first-home buyer loans.
Overall, the increase in new loan commitments in May 2023 indicates that property buyers are still active in the market, despite the high lending rates. While first-home buyers have been facing challenges due to rising prices, investors are showing more resilience. However, it is unlikely that lending volumes will reach the heights seen in 2021 when interest rates were at historic lows. The market seems to have stabilised since late last year, and the recent increases in May and March suggest that property seekers are still willing to enter the market.