Stimulus Pushes Lending to Record Highs

Government stimulus has shown up in the latest lending figures as Australians take advantage of record low interest rates and government support to invest in new housing.

Housing finance grew 12.6 per cent in August, outstripping the previous 10.7 per cent gain in July, with first home buyers and owner-occupiers leading the charge.

First home buyers grew 18.3 per cent, while owner-occupiers clocked a 13.6 per cent increase—the largest month-on-month rise in the history of the series.

Housing finance figures are expected to increase again when the removal of responsible lending curbs take effect and place upward pressure on house prices despite stagnant net migration acting as a counter weight.

ABS’ August figures reflect customer demand in June and early July—prior to Victoria imposing its stage 3 and stage 4 restrictions.

Westpac economist Matthew Hassan said the impact on lending from Melbourne’s lockdown will be seen in next month’s figures.

“However, some other drivers of the strength in August will continue,” Hassan said.

“Reopening rebounds are likely to gather momentum in other states—‘catch-up’ activity augmented by low interest rates and ongoing fiscal supports.”

Meanwhile, the Reserve Bank said that rising levels of financial stress will increase the risk of home loan defaults.

In its bi-annual financial stability review, the bank said that if the unemployment rate hits 10 per cent it will double the rate of housing arrears.

“While credit is available at very low interest rates, reduced housing demand from very low immigration and the rise in unemployment contribute to the risk of further falls in housing prices,” the central bank said.

“This increases the potential for losses for lenders in the event of a rise in distressed sales.”

Mortgage arrears are expected to increase once the payment deferrals period ends.

Almost 900,000 mortgages, about one in 10, were deferred in March. By August, 9 per cent of loans worth $160 billion remained on deferral.

S&P analyst Erin Kitson said mortgage arrear rises are likely to be more pronounced in Victoria and areas where tourism is a major employer.