Weak lending figures could point to rate cut

In seasonally-adjusted terms, the value of total dwelling commitments fell by 1 per cent in November, due largely to a significant drop in investor loans, which were down 2.2 per cent for the month.

Decreases were recorded in all states and territories except Victoria and the ACT, with Tasmania seeing the biggest fall of 1.3 per cent. The largest increase was recorded in the ACT, up 1.2 per cent.

Mortgage Choice spokesperson Jessica Darnbrough said it is not unusual to see a slight drop in home loan demand in the run-up to Christmas.

“In the lead-up to Christmas, it is not uncommon to see many potential home buyers put their property plans on the backburner,” she said.

“Of course, while home loan demand dipped a little throughout the month of October, it is important to note that the number of home loans being approved is still in line with long-term averages.”

In trend terms, the number of new dwelling purchase commitments decreased by 0.5 per cent while new dwelling construction increased by 0.2 per cent and the purchase of established dwellings remained unchanged, Real Estate Institute of Australia president Neville Sanders said.

“The November 2014 lending figures indicate a moderating market with November being the tenth consecutive month of modest drops in lending levels if refinancing is excluded,” he said.

“With moderating housing lending and GDP growth below trend, [and] inflation well within the RBA’s target zone, the RBA board should be considering a cut in interest rates at its February meeting.”

The central bank’s first meeting of the new year has been hotly debated in recent weeks.

AMP Capital chief economist Shane Oliver said the Reserve Bank might need to make aggressive rate cuts if non-mining activity fails to pick up this year.

The official cash rate has remained at a record-low 2.5 per cent since 2013, but both Westpac and NAB forecast last month that the cash rate would fall to at least 2.0 per cent in 2015.

SQM Research managing director Louis Christopher has also forecast a rate cut this year.

Mr Christopher said a rate cut would be triggered if – as he expected – the prudential banking regulator, APRA, imposed investor lending restrictions in 2015.

“They will do this in an attempt to reduce risky, speculative investor behaviour, particularly from those who should not be taking on large amounts of housing debt due to their limited capacity to pay it back,” Mr Christopher said.

“However, if APRA does move, it could potentially open the way for the Reserve Bank to make rate cuts, possibly more than the standard 25 basis points.

“It’s clear to most the economy is weak and, if it wasn’t for the threat of a national surge in house prices, rates would most likely be lower today.”

Mr Christopher said “the markets think it’s a dead certainty rates are going to be cut by April 2015”, while they also believe another reduction in June is likely.

“If such rate cuts happen, housing markets would be boosted throughout the course of the calendar year, with most cities recording growth at the top end of our forecast ranges,” he said.

However, Australia’s largest lender bucked the trend on Friday by forecasting that rates will remain unchanged in 2015.

The Commonwealth Bank said that arguments for near-term rate cuts rest on “weak foundations”.

“It is now quite likely that the Reserve Bank remains on the sidelines through 2015,” CBA said.

The lender argued that RBA governor Glenn Stevens weakened the argument for an imminent rate cut last month when he said he wanted monetary policy to be “conducive to confidence”.

CBA said the interest rate debate would probably swing in late 2015 from cutting to increasing the cash rate.