Investors chase property boom at expense of first-home buyers

New home lending to landlords reached near record highs in October as investors charge in to chase property boom.

Housing affordability – and what to do about it – looms as a big issue in the upcoming election. Picture: Supplied

Investors are flooding back into the property market at the expense of first home buyers, as new home lending to landlords reached close to record highs in October even as first time borrowing dropped for the ninth straight month.

The figures came on the same day as National Australia Bank hiked fixed rates for the third time in just over five weeks – closing the door on the last big four rate under 2 per cent.

Overall new mortgage commitments retreated 2.5 per cent to under $30bn, figures from the Australian Bureau of Statistics showed, driven by a 4.1 per cent drop in owner-occupier new borrowing, to $19.8bn.

The decline more than offset the 1.1 per cent rise in investor finance, which climbed for the 12th consecutive month to $9.7bn, and within reach of the April 2015 peak of $10.1bn.

While the value of new financial commitments to owner-occupiers is declining, it remains 15 per cent above a year earlier and 43 per cent higher than in February 2020, before the pandemic.

The number – rather than value – of new loan commitments to owner-occupier first home buyers fell 3.8 per cent in October, to be 16 per cent down on a year before, the seasonally adjusted ABS figures showed.

Again, while retreating sharply over the past year, there were still 20 per cent more first-time buyers securing new mortgages in October than pre-pandemic.

Meanwhile, RateCity data on Thursday showed there are now just 78 fixed home loan rates starting with a “1”, compared to 166 six months ago.

RateCity.com.au research director Sally Tindall said NAB had succumbed to funding pressure just like its rivals.

“The number of fixed rates under 2 per cent is fast disappearing,” she said.

NAB increased its owner-occupier and investor fixed rates by up to 0.50 per cent, including its 1-year fixed rate, which was previously 1.99 per cent.

Housing affordability is a hot issue leading into a federal election by May next year.

Home prices have climbed by around 20 per cent since the start of the pandemic, with even larger gains achieved in many cities and regional areas. Rents in some areas have also lifted beyond the reach of many Australians.

The sharp decline in rates to all-time lows during the pandemic, combined with state and federal incentives and a sharp post-Covid recession rebound, have turbocharged demand for housing.

Sydney’s median home price is now approaching nine times gross median household incomes, and the ratio is more than seven nationally.

Twenty years ago Sydney prices were a little over four times average incomes, while the national average was about 2.5.

A parliamentary inquiry into housing affordability, commissioned by Josh Frydenberg in July, is set to recommend that state and local authorities do more to increase supply of new land, and suggest the Commonwealth incentivise states to invest more in transport infrastructure to boost the amount of viable housing development opportunities.

That report is due to be tabled in parliament in February.

APRA has already ordered banks, from November 1, to lift the interest rate buffer from 2.5 per cent to 3 per cent when assessing borrowers’ capacity to repay, which the prudential regulator estimates will on average lower the maximum loan amount by about 5 per cent on average for those borrowing at their limit.

Analysts expect APRA will move again to curb riskier lending, potentially by setting limits on debt-to-income ratios.

While the value of new investor lending is almost at record highs, the ABS noted it remained only a third of overall lending – in 2015 during the previous peak, it was 46 per cent.

Further prudential controls, alongside a rise in borrowing costs as lenders anticipate rate hikes potentially as soon as late next year, will take the heat out of the property market in 2022 and potentially push prices lower in 2023, economists say.

Additional reporting: Matt Bell