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The deep drop in new mortgage applications is a stark illustration of how much the housing market has fallen – and some experts are warning we are yet to reach the bottom.
Since the May budget, all four major banks have reported hefty declines in loan applications, though economists also point out the mortgage slide is coming on the heels of an enormous boom in lending, fuelled by a surge in house prices. Some experts say a three-decade “super cycle” for housing could be ending, and there is little doubt that credit growth will slow down.
But the credit tap is not being turned off entirely. Far from it; even if new lending falls by 30 per cent, as some expect, it will still only take the annual flow of credit going into the property market back to where it was a few years ago.
Here are five charts that explain the boom in Australian mortgage lending – and the fall in new lending that is expected as the housing market continues to slow.
Our housing market had long been known for being one of the most expensive in the world. But since COVID-19, local house prices have risen more quickly than key comparable nations.
Australian house prices rose more than 50 per cent since COVID-19, according to this chart from AMP economist Diana Mousina, a trend driven by low interest rates, a jump in migration, and a shortage of homes compared with demand.
For many first home buyers, this surge in prices put homes even further out of reach and added fuel to the long-running debate about housing affordability, culminating in the federal government’s move to rein tax concessions for property investors in the May budget.
Australians are also known for carrying large sums of household debt – so much so that it’s among the highest in the world. This AMP graph shows the long-term run-up in household debt as a percentage of annual income, a key measure often used by economists.
A recent note from financial firm Challenger said a slightly different measure, the nation’s household debt as a percentage of gross domestic product, was 114 per cent, second only to Switzerland.
Why is our household debt so high? Challenger’s chief economist, Dr Jonathan Kearns, points to a few reasons: one is because households are much more likely to be landlords with mortgages in Australia, as opposed to overseas where corporations or not-for-profit operators commonly own rental housing. Another is that offset accounts are much more common here than in other markets. Finally, Kearns noted Australia is wealthy, and wealthier countries tend to have more debt.
The post-COVID housing boom was accompanied by a lending boom, but that is now reversing. Investment bank UBS’ chart shows how the value of new home loan commitments per quarter hit more than $100 billion earlier this year.
That is roughly twice as much as banks were lending out before the COVID-19 pandemic, which resulted in interest rates being cut to near zero, sparking a property bonanza.
Now that the housing market is falling, thanks to higher interest rates and a government clampdown on tax concessions for property investors, the mortgage boom is also unwinding. UBS forecasts the quarterly value of new mortgage lending will fall about 30 per cent from its early 2026 peak, by late 2027.
UBS chief economist George Tharenou expects the decline in new lending would last almost two years, as a result of people taking out smaller loans due to falling house prices and tighter lending conditions.