Borrowers are taking on bigger mortgages, the latest data shows, even though the pace of home price growth has slowed in recent months.
New lending data released by the Australian Bureau of Statistics recently shows the number of new loan commitments for housing fell 0.4% in the December quarter 2024, though the total value rose 1.4%.
The data reflects the softer finish to the year. While housing demand remained resilient to persistent affordability constraints in 2024, the pace of home price growth slowed throughout the year, culminating in small falls over the past two months as the softer end to 2024 carried over into the new year.
Although there were fewer loans approved in the final quarter of 2024, over the year to December 2024 the number of new loan commitments for housing rose 7.2% and the total value rose 16.0%, despite slowing from 24.7% year-on-year in the previous quarter.
This mirrors the resilience in housing demand seen throughout the year but also reflects the continued growth in home prices, with more than half of the growth in the value of new lending over the year to December 2024 stemming from higher average loan sizes.
The gain in the value of new loans in the final quarter of 2024 was driven by a 4.2% rise in the value of owner occupier loans. The average owner occupier loan reached an all-time high of $666,000, up $25,000 over the quarter.
The number of loans to owner occupiers rose 2.2% (+1,824 loans) in the December quarter 2024 to sit 4.0% higher year-on-year.
Meanwhile, the value of new loan commitments to investors fell for the first time in almost two years, down 2.9% quarter-on-quarter. This quarterly decline comes off the back of a record high $33.4 billion value of new lending to investors in the September quarter of 2024.
The number of new investor loans also fell 4.5% (-2,293 loans) compared to the previous quarter.
Despite the quarterly fall in the value of new lending to investors, the average loan size reached an all-time high of $674,000, up $25,000 over the quarter and $49,000 over the year.
In the past year, growth in the value of new lending to investors remains robust, up 22.0% year-on-year. The lift in investor activity seen through 2024 has driven this rise, with strong growth in rents and increasing property prices having attracted investors to return to the market.
The value of new housing lending remains 16.0% higher than a year ago despite growth slowing, with a continued uplift in the number of new loans over the past year reflecting the strength in housing market activity in 2024 that defied affordability challenges and the sustained high interest rate environment.
Growth in home prices and new lending activity slowed in the final months of 2024 as poor affordability, weaker economic conditions, and the sustained higher interest rate environment weighed on would-be buyers.
Looking ahead, market sentiment is likely to shift once more now interest rates have begun to move lower.
The prospect of rate cuts had already boosted sentiment, with Westpac’s latest consumer sentiment survey detailing a lift in consumer house price expectations – up 6.5% in February 2025, which is the first rise since October 2024.
Clearance rates had also also strengthened in every capital city in February compared to the final months of 2024.
As a result, the price falls seen over the past two months are likely to be short lived and may reverse with the slight improvement to affordability and buyer confidence driving renewed demand and price growth.
Housing affordability is at the worst level in three decades which means the price uplift could be more muted compared to previous easing cycles. This rate cutting cycle is expected to be shallow, resulting in the pace of home price growth trailing the strong performance of recent years.
