Australia household lending goes off the charts with 95% increase

Government stimulus and low-interest rates “stirred the pot” when looking at the current surge in lending 

As home and business lending in Australia continues to surge, Savvy analyses what it means for home buyers, investors, and businesses.  

Based on data from the Australian Bureau of Statistics, there was a 95 percent increase in household lending from May 2020 to 2021, and new loans reached AUD32.57 billion (USD23.63 billion). Owner-occupier lending almost doubled over the last 12 months, reaching a peak of AUD23.48 billion, while investor mortgages reached a six-year high of AUD9.13 billion in May 2021.  

Property buying in the business sector saw a 27 percent fall in May 2021 to AUD4.79 billion but rebounded and reached AUD7.160 billion. Meanwhile, new loan commitments in construction levelled off at around AUD2.36 billion, before dropping to AUD1.9 billion in June.  

New South Wales and Victoria accounted for 70.2 percent of all investor lending in May 2021. Coming in third is Queensland, standing at around half of Victoria’s total and a third of New South Wales. Such investing could be somewhat attributed to New South Wales’ property prices, in which the median house prices have increased to more than AUD1.3 million in the Greater Sydney area.  

Dr. Diaswati Mardiasmo, Ph.D, chief economist at PRD Real Estate, explains that Australia’s surge in lending is due to the current climate of government stimulus, low-interest rates, and a narrow gap between owner-occupier and investment loans.  

“The climb has started actually from when we were hit with COVID because the government came out with schemes such as HomeBuilder,” she said. “HomeBuilder came at the same time as us having historical low-interest rates. The cash rate has been kept the same at 0.1 percent. You’ve got that very stable base.”  

Homebuyers want to lock in the historically low-interest rates. Bill Tsouvalas, managing director at Savvy, said, “It makes sense to hedge your bets and lock in the lowest interest rates this country has ever seen, or ever will see, for as long as possible.”  

More: Australia’s housing market continues to strengthen with price rising in major markets

Moreover, home investments are becoming increasingly attractive as a safe bet due to higher rental yields, low returns from deposits, and a narrowing gap between investor mortgages and homeowner mortgages.  

“Previously, there used to be a bigger gap between home loan rates for investors and home loan rates for owner-occupied. But at the moment, that gap is actually quite narrowing and it’s very small,” said Dr. Mardiasmo. “People who are seasoned investors know that this would be the best time to get that loan on a much lower repayment and almost for the same rate as homeowners.”