Borrowers tighten belts as inflation pressures bite, says AFG

Rate rises push loan lodgements down

Borrowers tighten belts as inflation pressures bite, says AFG

Aggregator AFG recorded a drop in brokers’ total loan lodgement volume for the first quarter of the 2024 financial year following an intense period of successive rate rises, hikes in cost-of-living expenses and a lack of supply.

Lodgements was $20.9 billion, down 6.9% on the final quarter of FY23 as the AFG Mortgage Index results revealed the total lodgement volume was down 2.7% on the same period last year.

AFG CEO David Bailey (pictured above) said the entire economy was taking stock following the run of rate rises.

“It is also worth remembering that it is likely a tale of two halves across the quarter,” he said, commenting on the AFG Mortgage Index results.

“There are school holidays in the quarter and many people take the break and head away with family so that impacts activity.  

“We also need to take into account that the market is still coming off historical highs, driven by government stimulus and the funding advantages delivered to the big banks which provided an element of artificial inflation.”

NSW’s figures proved a standout with a 7% drop on the prior quarter and a 3.6% fall  from this time last year with most of the other states also registering drops.

Victoria lodgement volumes fell 7.3% on last quarter and 4.9% on Q1 FY23, Queensland was down 2.2% on the prior quarter and down 0.9% from last year, and Western Australia dropped 12.2% on last quarter and was down 1.7% compared to the same time last year.

In South Australia, volumes were down 8.5% on the prior quarter but up 2.8% on the same period last year while in the Northern Territory, volumes lifted 19% on the prior quarter but were 2.4% lower than in Q1 FY23.

When it came to predicting whether more buyers would return to the market, Bailey said it was hard to know.

“That will depend on the impact of the RBA’s efforts to quell inflation and the ongoing effects of the rates rises on the overall economy, including unemployment. Property supply is also an issue impacting the growth of the market, especially as immigration increases.”

AFG’s index results also showed the national average loan size was up $3,000; however, NSW recorded a drop of $10,000 which at just under $718,000 represents the lowest average loan size since the second quarter of FY21.

Bailey said NSW traditionally had the highest loan size across the country so while that state had recorded a slight drop, affordability, supply and borrowing capacity all affected activity.

“Borrowers will tighten their belts as inflationary pressures bite and limited supply means many will likely be waiting to see where rates head,” he said.

“Spring and summer typically present stronger months in the market and early signs appear as though the trend will continue in the warmer months.

“It could also be said that the cost of construction will continue to play a role in the average loan amounts in NSW.”

AFG data suggested that the interest rate pause meant many borrowers felt that further rate rises may have run their course, with those choosing standard variable rate products now at an historic high of 81.2%.

Earlier this year AFG announced that HSBC Australia’s range of home loan products had been made accessible on AFG’s system.

Last month, Islamic finance provider Hejaz Group became the first Islamic mortgage provider to have its products listed on AFG’s platform.  

Will broker loan lodgement numbers rise in the next reporting period following rate rise pauses? Share your comments below