The COVID-19 outbreak had taken its toll on new loan commitments during the peak of the lockdown measures in May, but refinancing commitments bucked the lending downtrend, latest report from the Australian Bureau of Statistics (ABS) show.
The value of new loan commitments for housing fell by 11.6% on a seasonally-adjusted basis, striking the largest decline since ABS started collecting data.
"While reduced transactions in the housing market stifled new loan activity in May, the value of existing owner-occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers," said Bruce Hockman, chief economist at ABS.
According to ABS data, there was strong growth in the value of fixed interest rate loans funded in April and May, driven by refinancing activity.
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Tim Reardon, chief economist at the Housing Industry Association, said the decline in new loan commitments reflects the peak of the COVID-19 related shutdown, the reduced demand for existing homes, and the slower processing of applications.
"Due to the lag between submitting a finance application and gaining approval, we anticipate that this is only the beginning of negative finance and construction data from the ABS," he said.
The fall in the value of loan commitments was driven by the significant declines in New South Wales and Victoria. Maree Kilroy, economist at BIS Oxford Economics, said the second lockdown in Victoria could potentially impact gains in financing.
"The second lockdown in Melbourne, Australia's second-largest city, will make transacting more difficult. Weighing on new dwelling demand in Victoria over the short-term, greater differentials can be expected on a state basis going forward," she said.
The value of investor loans also declined in the month, down by 15.6% on a seasonally-adjusted basis. At the same time, the overall value of lending to first-home buyers decreased by 10.5%.
Reardon said while the impacts of the federal government's HomeBuilder scheme on financing would only be reflected in the coming months.
"HomeBuilder, along with other state incentives and an easing of restrictions, will assist in bringing consumers who delayed their purchasing decisions back to the market," he said. "This will minimise the adverse impact of the COVID-19 shock on employment in the homebuilding sector, but this will not be reflected in ABS data for some months."