Home loan applications set to slow as Australian house prices fall

Mortgage demand is expected to slow as Australia’s house price boom wanes.

Home prices – as measured by CoreLogic – rose just 1% in December, the slowest pace in nearly a year, although in 2021 they were still up more than 20% to national scale.

Affordability constraints and rising fixed mortgage interest rates are seen as the reasons for this slowdown.

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In October, the banking regulator also tightened rules when applying for a loan, to ensure that potential buyers can pay the mortgage when interest rates inevitably start to rise on variable-rate loans.

At its quarterly meeting in December, the Board of Financial Regulators felt it was too early to assess the impact of increasing the service cushion to three percentage points above the applied loan product rate, against 2.5 percentage points previously.

New data is expected to show a drop in the number of new home loans in November. Credit: AAP

However, they continue to keep a watchful eye on developments in the housing market in general.

The Australian Bureau of Statistics will release loan figures for November on Friday.

Economists at AMP Capital expect home loans to have risen 2% in November.

In October, demand for home loans from investors approached the record level reached in April 2015 after increasing for 12 consecutive months.

On the other hand, loans to first-time buyers fell for a ninth consecutive month and were down 16% over the year.

File image of a sign being sold at a property. Credit: AAP

House prices are soaring

Data from CoreLogic shows home prices across the country rose 22.1% in calendar year 2021 to a median home value of nearly $710,000.

Property prices in Sydney, where the median home value is over $1million, soared 25.3% for the year, before a 15.1% jump in Melbourne.

Prices rose 28.1% in Hobart, which was the biggest gain of any capital city in 2021.

The combined increase in the eight capitals was 21% for the year, while regional areas saw a larger increase of 25.9%.

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