Home loans growth “defies logic” as rate rises hurt borrowers
Home loan growth continues despite the Reserve Bank’s 11 interest rate rises, and there’s a new warning about house prices.
Mortgage sector competition remains fierce as the Commonwealth Bank holds onto its market share of more than one quarter of Australia’s home loans.
A new UBS analysis of banking regulator APRA data says mortgage lending continues to grow, despite surging interest rates, and business lending is increasing faster still.
The report came as Westpac tweaked its home loan interest rates on Thursday, dropping its two-year fixed rate but increasing its one-year rate, while CBA warned of a “concerning” imbalance in the housing market after strong price gains in May.
The UBS report says housing loans grew 0.4 per cent in April and 5.4 per cent year-on-year.
“Competition in the mortgage sector remains intense,” it says.
UBS says ANZ has been slowly clawing back mortgage market share, while CBA has maintained its dominance with a market share near 26 per cent, and Macquarie’s previously strong growth is “noticeably slowing down”.
“Business banking is receiving more attention as banks reallocate capital away from mortgages,” it says.
“April data shows CBA is growing its lending – 18.1 per cent – and business banking deposit – 22.3 per cent – market share strongly. This could be at the expense of NAB.”
RateCity research director Sally Tindall said the strength in home loans defied logic.
“The market has shown huge resilience to the 11 rate hikes that we have had,” she said.
Ms Tindall said rising property prices and a lack of housing stock had “helped offset the fact that the maximum amount people can borrow from banks has been shredded by each rate hike”.
“The Covid buffers that a lot of families built up during the pandemic have stood them in good stead,” she said.
Ms Tindall said there was a lot of competition still in the mortgage market, and many borrowers were not having to pay the full 3.75 percentage points of higher interest rates unveiled by the Reserve Bank since May 2022.
She said the big four banks’ ongoing strength in mortgages was “astonishing” but could start to wane as lenders including CBA and NAB scaled back or cancelled customer discounts and cashback offers.
“The more that customers get out there and look for options beyond the big four, the more that competition in the market is going to stay alight.”
Meanwhile Westpac has lowered its two-year fixed mortgage rate on owner-occupier home loans from 6.19 to 5.79 per cent, but raised its one-year rate to 5.79 per cent, up 0.15 percentage points.
Ms Tindall said the changes reflected the cost of funding for banks “and a bit of cash rate forecasting as well”.
“The market is bouncing around a little,” she said.
Both CBA and AMP are predicting solid growth in house prices this year following a third monthly rise in May.
CBA head of Australian economics Gareth Aird said “price momentum looks entrenched over the near term given the big imbalance between underlying demand and supply”.
“We would simply highlight that the supply and demand imbalance in the housing market is concerning, and it does not appear like it will improve in the short run,” he said.
“This means that home prices are likely to trend higher despite the deterioration in affordability.”
Mr Aird forecast house prices to rise 3 per cent nationally over 2023 and 5 per cent in 2024 amid a “largely unprecedented situation of a highly aggressive RBA tightening cycle, record high immigration, surging rents and collapsing building approvals”.
“The risk to our dwelling price forecast in 2024 is firmly to the upside given we expect the RBA to be in an easing cycle,” he said, adding that the turnaround in property prices over the last three months has been “remarkable” given the RBA has continued to lift the cash rate.
AMP chief economist Shane Oliver sad surging demand, constrained supply and high immigration were dominating the negative impact of higher interest rates.
“However, the risk of another down leg in prices remains high as interest rate hikes continue to impact and the economy slows – with a now very high risk of a hard landing for the economy.”
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