AAP Finance

Mortgage approvals fall more than expected

By AAP Newswire

The outlook for Australia's housing market could be weaker than previously thought after the number of owner-occupier mortgages approved in August fell by far more than economists had expected.

Home loan approvals for owner occupiers fell 2.1 per cent in August, surpassing market expectations of a 1.4 per cent fall.

The value of total housing finance was down 2.1 per cent at $30.667 billion for the month, seasonally adjusted data from the Australian Bureau of Statistics showed.

The value of new home loan approvals for owner-occupiers was down 2.7 per cent, while the value of investor loans was down 1.1 per cent.

With property prices tending to follow the expansion or contraction of credit availability, the fall in loan approvals suggests recent declines in home values are likely to continue.

"We expect investor credit to remain weak through the remainder of this year and into 2019 as the combination of stricter lending standards and falling house prices weigh on lending behaviour," JP Morgan rate strategist Ben K Jarman said.

"Housing finance data corroborates the other housing-related data flow, with building approvals, auction clearance rates and house prices all taking on a softer tone."

ANZ senior economist Daniel Gradwell said the weakness - with the 14 per cent annual decline in approvals the worst since 2010 - was unsurprising and already factored into the bank's housing forecasts.

CoreLogic data this week showed capital city home prices are down 4.1 per cent on the same time a year ago.

The Reserve Bank said on Friday characterised the decline in credit as mostly demand-driven, which Mr Jarman called "dubious".

The RBA's six-monthly Financial Stability Review downplayed risks that "an excessive tightening in lending standards could exacerbate the current housing slowdown," indicating risks to the financial system remain low and manageable.

"RBA officials seem very comfortable that the bulk of the heavy lifting has been done on lending standards - the fact that house prices have declined in a gradual, orderly fashion informs that view," Mr Jarman said.

"In our opinion however, it is a little early to make this call, particularly given recent revisions to house price data show weakness intensifying in the last few months."

The Australian dollar was slow to react to the data's release, but fell from 71.27 US cents just before the release to 71.21 at 1350 AEDT.