Home Loan Statistics Australia: 2022 in Review
The home loan market for 2022 offers an interesting glimpse into how the pandemic shaped the Australian economy and the housing market.
From rising inflation, interest rate hikes, and falling house prices on one hand to decent LVRs and debt-to-income ratios on the other, the data shows how dynamic the home loan market is in Australia.
In this article, we put together some of our own home loan data and industry insights to provide an overview and analysis of home loan trends in Australia for 2022. Also, a peek into what 2023 has in store.
What Happened in 2022?
Two notable developments in the Australian economy, namely cash rate rises, and inflation have been summarised below:
1. Cash Rate Rise:
In May, the Reserve Bank of Australia (RBA) announced an increase in the cash rate to 0.35% (up 25 basis points), the first rate hike since November 2010.
The rise was explained as a move towards withdrawing monetary support during the pandemic. However, with evidence of wage growth picking up, it was seen as a time to begin normalising monetary conditions.
Then, in December, the central bank increased its benchmark interest rate for the eighth consecutive month, touching a nine-year high of 3.10%. It also issued a statement citing further increases are expected to help return inflation to target.
2. Inflation:
In September, the CPI inflation rate climbed to 7.3%, the highest over three decades. The federal government expects inflation to peak at around 8% later this year.
How Did this Impact the Property and Home Loans Market?
With RBA raising interest rates for six consecutive months, as of November 16, most of Australia’s big banks have raised their home loan rates, passing the whole interest rate hike onto lenders.
In fact, even ahead of the interest rates in May, banks began increasing fixed-rate loans, expecting cash rate increases.
Here are some notable impacts on the housing market:
1. Household Budgets
Rising interest rates and inflation have put pressure on many household budgets, especially first home buyers who have just stepped onto the property ladder.
For example, assuming bank fees remain the same and with a further 0.25% interest rate increase, a family making monthly repayments on a principal and interest loan for 30 years at an interest rate of 4.55% will have to pay the following:
- An additional $75 a month on a loan of $500,000.
- An additional $120 a month on a loan of $800,000.
- An additional $150 a month on a loan of $1 million.
2. Housing Prices
Housing prices have declined after significant increases earlier this year. Some key highlights, according to the Australian Bureau of Statistics ABS during the March and June Quarters:
- Total value of Residential Dwellings: Across Australia, it rose to $10,173.6 billion (households owned $9,723.7 billion) during the March quarter. However, the figures dropped to $9,983.4 billion during the June quarter.
- Number of Residential Dwellings: increased to 10,801,400 during the first quarter and to 10,833,700 in the second quarter of the year.
- Mean price of Residential Dwellings: Rose to $941,900 per March data but dropped to $921,500 as per June numbers, coinciding with the rate hikes.
NSW recorded the highest mean price for both quarters, followed by ACT and Victoria. The Northern Territory reported the lowest mean price.
3. Australia Home Loans
According to the lending indicators data published by the ABS, in seasonally adjusted terms, the following trends were observed:
- New Loan Commitments: From Jan - May this year, they kept fluctuating, reflecting the uncertainty of the pandemic.
From June to September, the new loan commitments (seasonally adjusted) have consistently been dropping across both owner-occupier and investor housing. Notably, borrowing remained significantly higher than pre-pandemic levels in Feb 2020. - External Refinancing: In seasonally adjusted terms, external refinances' value was higher than a year ago. Most significant was the rise in owner-occupier housing to a new record high of $12.8b. This was 17.5% higher compared to the previous year.
- First Home Buyers: In general, in seasonally adjusted terms, the number of new loan commitments for owner-occupier first home buyers remained lower than a year ago. This highlights that the rising interest rates and inflationary trends may have impacted the borrowing power of first-home buyers looking to enter the property market.
Nonetheless, while acknowledging a drop in consumer confidence and housing prices following the earlier increases, there are positive observations too.
The employment rate is improving with more people entering the workforce, and employees earning higher wages. Moreover, many households have built significant financial buffers, and the saving rate remains higher than pre-pandemic levels.
Nonetheless, while further interest rate hikes are expected, the Reserve Bank expects inflation rates to drop next year. This is relevant for home loan borrowers, especially first-home buyers, who will likely benefit from lower inflation rates.
How Australians Utilised Joust Services
In 2022, most Australian borrowers used Joust for refinancing their home loan (79.1%); 18% of borrowers that used Joust were looking to buy, while nearly 3% were looking to finance their home build.
The findings are consistent with ABS data which indicates a higher proportion of refinancing compared to the previous year. It could mean that more and more Australians did a home loan health check, given their changing financial circumstances.
What Type of Home Loan Was Most Popular?
Proving that homeownership is still a much-cherished dream for most Australians, 80.5% of the home loans on the Joust Marketplace were owner-occupier home loans, while the remaining 19.5% were investor loans.
The federal and state governments offer a number of grants and schemes. This has likely enabled home buyers - especially eligible first-home buyers and single parents- to access the property market with a lower deposit and reduced or no need for LMI.
Another reason could be that home loans for investors are considered higher risk. For this purpose, they have more stringent conditions and higher interest rates than loans for owner-occupiers. In the current market, investors may likely focus on other asset classes for better returns.
Average Property Value in 2022
The average value of properties sold dropped from $935,463 in 2021 to $934,541 in 2022.
These trends reflected the national trends where property prices in most places, especially those around capital cities, dropped in 2022.
According to industry findings, the drop in property values has been linked to high-interest rates and inflation.
For example, homeowners in Sydney and other capital cities have been selling properties to escape high-interest rates. Also, in cities like Sydney and Melbourne, the prices being significantly higher than in other property markets, many borrowers have likely felt the heat of the interest rate spikes. Further, the demographic headwinds caused by people leaving may also be contributing factor .
On a positive note, the values across most regions remain above pre-COVID levels. This means most homeowners continue to have a favourable valuation position compared to their purchase price.
What Was the Average Loan Size?
The average loan size dropped from $590,361 in 2021 to $543,687 in 2022.
One of the reasons could be the record high inflation, which is expected to peak at around 8% by the year-end. People have become more cautious when it comes to taking on debt.
Inflation in groceries, consumer durables and market services and housing costs have increased the stress on household budgets. Also, many homebuyers may have possibly scaled down their budgets for a new home purchase, leading to a decrease in the loan amount.
The drop in the value of loan size could also be attributed to the drop in property prices since their peak in April this year.
Average Loan-to-Income Ratio
A loan-to-income ratio compares the amount of your debt with your overall income. A high debt-to-income ratio directly impacts your ability to secure a loan. Typically, a low debt-to-income ratio (generally lower than 3.6) is often considered favourable by lenders. Anything above 6 is high.
The drop in the average loan-to-income ratio from 3.81 in 2021 to 3.71 in 2022 could be attributed to the borrower's initiatives to reduce debts. These include refinancing to a more affordable loan, debt consolidation, cutting back non-priority expenses and increasing wealth-generating investments.
Also, the drop in the loan-to-income ratio corresponds with the drop in average loan size and refinancing trends by borrowers.
Average Loan-to-Value Ratio
The loan-to-value Ratio (LVR) is the ratio of your loan amount compared to the value of the property you’re purchasing. An LVR above 80% is considered high risk, and most lenders will require you to pay LMI.
The average LVR from the start of the year until November is 64%. This means the majority of borrowers are taking out loans with lower risk.
A reasonably low LVR is a good sign. It'll enable borrowers to refinance or take out additional loans more easily. In addition, many lenders offer lower interest rates for home loans with low LVRs because of the decreased risk to the lender.
Further, a low LVR also indicates that the value of your property is significantly more than the loan associated with it. So if you cannot meet your repayment, and your lender has to sell your property, they will most likely be able to recover the loan balance owed.
What Can We Expect in 2023?
To begin with, RBA's central forecast1 is that CPI inflation will likely be around 4¾ per cent over 2023 and slightly above 3% in 2024. However, it expects to increase interest rates further over the period ahead.
The main priority, however, is to reduce inflation to the 2%–3% range over time. The future interest rate increases will continue based on the outlook for inflation and the labor market.
To Fix or Not to Fix
Fixed interest rates are significantly more costly than variable interest rates. Most borrowers are overwhelmingly opting for variable rates over a fixed rate - opting for a rate that begins with a ‘5’ or a ‘6’ can be difficult for many!
If you're looking to acquire a home loan in 2023, market watchers suggest you opt for a loan that meets your individual needs. This means you could fix your loan once fixed interest rates get closer to or below the variable interest rate.
Let Joust Help You with Your Home Loan!
It has been a year of change in the home loan market. But, at the same time, you shouldn't feel overwhelmed.
If you're looking for a home loan that matches your specific circumstances, our Instant Match service can help you find the right loan quickly and easily.
Just enter a few details, and you'll be presented with the three most competitive loan options from our panel of trusted lenders. From there, you can compare the products and make an informed decision. There is also no obligation to proceed with any offer presented.
Note: The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
