Lending update – March 2021

As businesses aim to return to “normal” with the confidence boost offered by the COVID vaccination roll out, all eyes are on housing prices across the country.

Buoyed by record low interest rates, dwelling prices nationally increased by 2.1% in February, which is the fastest month on month increase since 2003. St George Bank Economist, Matthew Bunny, is expecting dwelling prices to continue on this trajectory with up to 10% growth in 2021 and again in 2022.

Housing finance figures also appear to be following a similar upward trend with new lending for housing rising again for the eight consecutive month, up 10.5% in January from December. There is a strong demand for both owner-occupiers and investors, however the ratio of first-home buyers again increased to account for 36.5% of new owner-occupier funding.

One possible contribution to these factors is the First Home Loan Deposit Scheme. On the 3rd of February, first-home buyers across Australia received another boost from the Federal Government with an additional 1800 places added to the Scheme. Subject to income and other tests, first-home buyers are able to purchase a home, or build a new home via the scheme with a much lower deposit than has previously been expected. Via participating lenders, the Scheme guarantees up to 15% of the property value which in turn removes lenders mortgage insurance and total deposit required. When combined with other state-based incentives, this can mean that first-home buyers might only need a 5% deposit to purchase. Such low deposit figures have been unseen since prior to the introduction of responsible lending rules 10 years ago.

In addition to assisting first home buyers into the market, the Federal Government is incentivising owner-occupiers to complete substantial renovations to their properties, or build a new home, as part of an initiative to boost to the construction sector. Whilst the boost has reduced from $25,000 last year, down to the current $15,000, the grant continues to encourage spending. However with a current deadline of 31st of March 2021, the rush is on to sign a contract before the deadline.

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