Mortgage lending plunges 6.1pc in December

Mortgage approvals sank by a bigger-than-expected 6.1pc in December amid falling house prices and lending curbs.

There’s been a sharp contraction in apartment building. Pic: Adam Yip

Australian mortgage financing continued to contract in December as falling house prices and tighter regulation around bank lending for homes tightened its grip on the market.

The number of home-loan approvals fell by a seasonally adjusted 6.1 per cent in December from November, the Bureau of Statistics said. Economists had expected a 2.0 per cent fall in lending over the month.

The value of loans for investment housing fell by 4.8 per cent from November, the ABS said.

Australia’s housing market is weakening as an array of factors have come together to depress prices, and keep lending by banks constrained.

The Australian Prudential Regulation Authority, the country’s banking regulator, supported by the Reserve Bank of Australia, moved some time ago to clamp down on loose mortgage lending, especially to investors and those seeking loans that required the repayment of interest only.

The aim of the policy push was to reduce the risk of financial instability affecting banks and the broader economy, should a global shock fuel a downturn in growth.

A high level government inquiry into alleged misdeeds by the country’s major banks has also choked off the channels of lending for housing as banks grew timid, while sharp falls in house prices meant prospective home buyers have remained on the sidelined.

The drop in house prices is expected to extend through 2019, with a sharp contraction in the building of apartments expected to drag on economic growth.

Many market watchers expect prices in Sydney to fall by 20 per cent peak-to-trough in the current downturn. Currently they are down by around 10 per cent.

Acknowledging rising risks to growth and employment, the RBA last week abandoned a view that the next move in interest rates would be up, saying the outlook is now “more evenly balanced.”

Financial markets have priced in a strong chance that interest rates will be cut before the end of this year.

Dow Jones Newswires