Political uncertainty drives fall in home lending

Adam Smith 12 July 2016

house keysA decline in new home lending in May has been attributed to Budget confusion.

New figures from the Australian Bureau of Statistics (ABS) show the number of home loans to owner occupiers for construction fell 2.7%, while loans for the purchase of new homes rose 0.5%. Total new home lending volumes were down 1.7% for the month and were 2.1% lower than May 2015.

Housing Industry Association (HIA) senior economist Shane Garrett said the fall came despite the RBA’s official cash rate cut at the beginning of May. Garrett put the fall down to political uncertainty.

House prices could fall across the board

“The federal Budget was also delivered on the same day and prospective homebuyers are likely to have taken a step back from the market until its implications became clear,” Garrett said.

Garrett predicted home lending volumes would rise with the federal election decided.

“With the federal election result now clear, potential homebuyers are likely to return to the market with a great deal more certainty. The prospect of another interest rate reduction later in the year will be welcomed by those looking to enter the market. We expect new home lending volumes to strengthen over subsequent months as a greater number of apartments currently under construction reach settlement,” Garrett said.

Real Estate Institute of Australia (REIA) president Neville Sanders said first home buyers as a proportion of owner-occupied housing finance commitments fell to 13.9%, the lowest level since April 2004.

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