Mortgage Index – October 2014

Investors drive demand for home loans to record high – September data

First home buyers fall to record low.

Strong demand from investors drove the overall number of home loans processed to a record high in September, according to AFG, Australia’s largest mortgage broker. Last month the company processed a total of $4.3 billion in mortgages across the country, with 40.3% processed on behalf of investors. The 40.3% figure is an increase on the previous all-time high proportion of 40.0% recorded in May this year, and the $4.3 billion in volume is 3.5% above the previous record of $4.2 billion, also recorded this May.

AFG is Australia’s largest mortgage broker with a total market share of mortgages processed each month of approximately 10%. Its figures are usually strongly indicative of trends reported in ABS data six weeks later.

Investment mortgages comprised 49.7% of new home loans processed last month in NSW, 37.2% in VIC, 36.4% in SA, 34.9% in QLD and 32.2% in WA.

September also saw first home buyers fall to a record low of just 8.4% of new home loans processed. This figure was down from a previous low of 9.5% last month and a figure of 11.3% in September last year. First home buyers comprised 3.7% of new home loans in NSW, 5.1% in QLD, 7.5% in SA, 9.1% in VIC and 18.5% in WA.

Separate analysis conducted by AFG shows that the percentage of first home buyer loans with a loan to value ratio (LVR) above 90% has increased from 57% of all FHB loans in 2012 to 64% last month. During the same period, the proportion of investment loans with LVRs under 80% has declined from 46% to 40%. Strong overseas investor activity is likely to be a contributing to these changes.

Mark Hewitt, General Manager of Sales and Operations says: ‘With countries like Canada making it more difficult for overseas residents to invest in property, very strong demand from investors can be expected this spring. The concern however is for first home buyers.

Historically, this segment has comprised around 15% of all the loans we process, but in recent months this figure has fallen into single digits.’

The number of borrowers choosing to lock in fixed rates rose again in September to 25.3% – the highest such figure recorded since November 2013 (27.9%). Introductory loans, used by lenders to attract new borrowers comprised 8.4% of all new home loans – above the long term average or around 7%.

Loan to value ratios (LVRs), loans expressed as a proportion of property values, fell back in September to 66.9%. This compares to 69.5% in August and 68.5% in September 2013.

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