‘Move-up buyers’ drive growth in housing finance

According to Deutsche Bank’s Australian Housing Update, in October 2016 Australia's mortgages were valued at $244.5 billion, up 9.7 per cent on 2015, but down 0.9 per cent from Sept 2016.

The largest contributor to this value were ‘move-up buyers’, whose home loans were valued at $76.8 billion, making up 31 per cent of the annualised dwelling finance value for the period.

While this is markedly up from the recent low of 7.8 per cent in June 2015, it is still below the historical average of 33 per cent, and 3.7 per cent below what it was in September 2016.

In comparison, first home buyers’ contribution remained below the historical average of 19 per cent, declining by 1.8 per cent year-on-year (yoy) to 11.7 per cent (or $28.5 billion) in October 2016.

Investor buyers still made up more than half of dwelling loan values, however values declined by 12.2 per cent on October 2015’s figures, dropping to 57 per cent in October 2016 (or $139.2 billion). Despite this fall, the contribution is still above the historical average of 48 per cent.

Home loan values by state

On a state basis, annualised dwelling finance by loan values increased in all the major states except Western Australia, where values dropped by 8.3 per cent (yoy).

The states to see the largest increases were NSW and Victoria, which Deutsche Bank found had a 13 and 15 per cent rise, respectively.

Again, the crackdown on investor lending seems to be taking its toll, with the value of these loans falling in all states on an annualised basis. The mining downturn in Western Australia seems to have impacted the investor market the most, with a 32 per cent decrease (yoy). NSW saw a 12 per cent drop in investor loan values in October 2016, while Queensland saw a 11 per cent drop, South Australia a 10 per cent drop, and Victoria an 8 per cent drop.

The picture was more mixed for first-home buyers on a state level. Annualised loan values for this segment increased by 7 per cent in Victoria, Queensland and South Australia all October 2016, while values fell by 7 per cent in NSW and dropped by 19 per cent in Western Australia.

As well as noting a uptick in annualised home loan values, the report also argued that housing affordability has improved, even in the face of rising house prices. It states that this is largely due to interest costs.

The report reads: “Home loan affordability (which is the ratio of median family income to average loan repayments; an increasing value reflects improving affordability of housing loans) increased +7.3 per cent yoy in QS16 [the September quarter 2016], and is in line compared with the historical average.

“Home loan affordability [as calculated by the REIA] has improved in all the states on a yoy-basis in QS16 (+7 per cent yoy in NSW and +10 per cent yoy in Victoria)…

“We believe interest cost as a percentage of median household income is the key driver for affordability.”

[Related: Mortgages ‘not expensive relative to rent’, finds bank]