Value of home loans edges up following banking royal commission report

Lending to home buyers edged slightly higher in February, in the first data released since the financial services royal commission’s final report.

But the value of loans granted over the month is still much lower than a year ago, official figures show.

Potential homebuyers have found it harder to get a home loan over the past two years than previously as the bank regulator clamped down on lending practices, particularly to investors and riskier borrowers.

The spotlight of last year’s financial services royal commission also exposed loans granted to borrowers whose living expenses had been under-reported. After the hearings, banks became more stringent about checking borrowers’ expenses, with stories emerging of buyers being turned down because of their Uber Eats habits.

The value of lending to households for dwellings, excluding refinancing, rose 2.7 per cent to $17.64 billion in February, compared to January.

The slight increase comes after the royal commission’s final report was released on February 4.

But the value of loans to households is still 18.6 per cent lower than in February last year.

Loans for investment properties inched up 0.9 per cent in the month, but are still 29.1 per cent less than a year ago.

For owner-occupiers, lending lifted 3.4 per cent but was down 13.9 per cent from last year.

“[These are] very tentative signs that there is more appetite to borrow, and banks may be a bit more willing to lend,” Domain Group economist Trent Wiltshire said.

However, he cautioned against reading too much into one month of data after the falls of the past one to two years.

He also noted the slight increase comes as auction clearance rates in Sydney and Melbourne have edged up from their late 2018 lows, but warned clearance rates tracking at about 50 per cent could hint at further price falls this year.

Westpac senior economist Matthew Hassan said the figures were consistent with a slowing in the pace of dwelling price falls in recent months.

“Some of the effects of tightening credit conditions may also be dissipating,” Mr Hassan said.

“That said, the signs of improvement are still only tentative. The market may be starting to find a base in terms of finance activity, but conditions remain weak overall.”

Commonwealth Bank senior economist Belinda Allen said trends in home loans tend to be a good leading indicator of the direction of dwelling prices.

“While one positive month is too early to suggest an end to the weakness in dwelling prices when this data is combined with the smaller falls in dwelling prices in March, it could suggest the worst of the falls are behind us,” Ms Allen said.

First-home buyer loans reached their highest share of loans to owner-occupiers in six years, at 27.1 per cent.

But Mr Wiltshire noted that first-home buyer loans have still fallen over the past year, albeit at a more modest pace than loans to other owner-occupiers.

By state, loans in NSW lifted 5 per cent over the month but are still 23 per cent lower than a year ago. In Victoria, loans edged up 2 per cent in the month and fell 21 per cent over the year.