Borrowers race to capitalise on record low rates

A mix of record low borrowing costs and government incentives has sparked a boom in new lending and building approvals.

The jump in new loan approvals has be accompanied by a surge in housing construction.

The Reserve Bank is poised to slash rates to a record low 0.1 per cent as new data shows home lending surged to a record high and national house prices lifted for the first time since the pandemic hit, driven by the lowest borrowing costs in history.

RBA governor Philip Lowe is expected to announce a major monetary policy package on Tuesday, despite growing unease that ever cheaper money is boosting asset prices but providing little direct economic stimulus, while penalising savers.

In addition to lowering the cash and three-year bond rates from 0.25 per cent to 0.1 per cent, economists said the central bank might also unveil a commitment to buying longer-term government securities — an unorthodox monetary measure known as quantitative easing, or QE.

Lowering longer-term rates would do little to boost lending and borrowing but economists said it would exert downward pressure on the currency and support exports.

The expected wave of renewed monetary easing comes as new housing loan commitments surged 5.9 per cent to a record $22.5bn in September, seasonally adjusted figures from the Australian Bureau of Statistics showed.

 

New housing loan commitments are 26 per cent higher than a year ago as Australians take full advantage of cheap loans and government incentives to buy and build new homes.

New financing for owner-occupiers jumped by 6 per cent to $17.3bn — 34 per cent higher than September 2019 — while new investor lending climbed by 5.2 per cent to $5.3bn.

The number of first-home buyer finance commitments rose 6 per cent to 13,040 loan commitments — the most since late 2009 and 46 per cent higher than 12 months earlier. First-home buyers accounted for a third of new loans in the month.

About half of the surge in new lending for owner-occupiers was for new properties, which increased 25 per cent in the month.

ABS head of finance and wealth Amanda Seneviratne said it was “likely” the HomeBuilder grant, which gives eligible owner-occupiers a grant of $25,000 to build a new home or substantially renovate an existing home, was “contributing to increased demand for construction loans”.

In line with the jump in borrowing to finance new constructions, separate ABS figures showed building approvals for new dwellings climbed 15 per cent to 15,827 in September, driven by a 23 per cent monthly increase in the apartments segment.

The number of stand-alone houses approved for construction increased by almost 10 per cent in the month to 10,238, continuing a streak of strong gains in recent months that left approvals 20 per cent higher than a year earlier and just shy of the peak in early 2018.

The jump in Australians taking up new loans has sparked an early turnaround in property prices, with CoreLogic figures revealing home values lifted in October for the first time since April.

Prices rose by 0.4 per cent nat­ionally to be up by 3.9 per cent over the year, the data showed, with particular strength outside Sydney and Melbourne. The Victorian capital was the only major city to record a slight fall in prices.

The value of new home lending lifted in all states except Tasmania and Victoria. ABS data showed Queensland and Western Australia with the largest increases in new mortgages, up 16 per cent and 25 per cent over the month respectively.