Interest and Inflation Rates Slow Down Mortgage Lending

The high interest rates and cost of living bite the Australian economy as owner-occupier mortgage growth eases while investment loans slightly boom.

July 29, 2022

interest and inflation rates slow down mortgage lending

With the Reserve Bank of Australia set to make another announcement on Tuesday, the latest data points to a slowdown in mortgage lending growth for owner-occupiers.

Owner-occupied lending increased by $111.5 billion (9%) while investment lending hiked to $37.7 billion (6%) throughout the 2022 financial year. However, the high-interest rates and cost of living seem to bite the Australian economy.

With the high speculations of another interest rate hike to curb the 6.1 inflation rate, owner-occupier mortgage growth eases while investment housing lending slightly booms.

Interest and Inflation Rates Slow Down Mortgage Lending

Owner-occupier lending

Since the RBA’s back-to-back interest rate hikes, lending growth for owner-occupiers eased from a 9% annualised rate in April to 8.6% in June. Based on the Australian Prudential Regulatory Authority (APRA) data for June, the growth rate moderated to 0.8 for owner-occupiers.

The ease in the annualised growth rate can be attributed to the RBA’s aggressive approach to interest rates and the expensive cost of living. If the RBA decides to increase the interest rate by another 50 basis points, this will push owner-occupiers’ repayments to 1.85%.

Rate City research director, Sally Tindall warns, ‘More pain is on the way for the one-in-three households with a home loan. The RBA has warned it plans to steadily increase rates to try to rein in inflation, with some economists now forecasting a cash rate of 3.35 per cent within months.’

Investment housing lending

While owner-occupier lending eases, there seems to be a slight growth in investment housing. Investment loans hiked at 6.4% month-on-month as landlords prepare for the return of migrants. This growth in investment housing lending can be from dire rental crises across Australia.

According to the PropTrack Rental Report, the median weekly rental prices increased by 7% compared to June 2021. With the rental market experiencing low vacancy rates, high demand and high rental yields, it’s no surprise that investors are swarming into the market despite the looming interest and inflation rates.

Whilst the RBA does note the percentage of loans being owner-occupied over investment loans, there is nuance involved.

Joseph Daoud, Founder and Managing Director of It’s Simple Finance, notes, ‘Human behaviour has changed dramatically in the last 6-7 months as there has been a focused return on travel. Moreover, modelling shows that expenditure has moved from housing into this particular market.

Prior to COVID-19, if you looked at the home lending rates, they were quite similar to what they are returning to. ‘This is just a market correction,’ Daoud claims.

Banks vs market volatility

On Thursday, Macquire defied expectations and reported a 3% growth in its shares and an 8% growth in its lending services. Based on the Macquarie Group 2022 Annual General Meeting and first quarter 2023 update, ‘Increased investment-related income compared to 1Q22 was primarily due to asset realisations and an increase in the credit portfolio.’

However, Chief executive Shemara Wikramanayake still warns the public that earnings may still ease because of market uncertainty, which may lead to fewer deals and lower asset prices.

Macquarie said, ‘We continue to maintain a cautious stance, with a conservative approach to capital, funding and liquidity that positions us well to respond to the current environment.’

On the other hand, some of Australia’s biggest banks, Westpac and ANZ reported downturns in the investor market with Westpac shrinking by 1.7% and ANZ remaining below-average in all categories.

In terms of owner-occupier lending, Westpac gained 7.1% while ANZ decreased by 1.7%.

However, ANZ has also slashed its owner-occupied rates to remain competitive. The bank stepped up and cut new customer variable rates by 0.50% despite hiking them up following the RBA’s announcement.

As stated by Rate City, ‘Australia’s fourth largest lender has cut its basic variable rate for new owner-occupier borrowers between 0.10 and 0.25 percentage points, depending on their loan-to-value ratio (LVR).’

To be fair, all the banks combined currently do not have the customer service skills that Macquarie has nor the technology systems to process applications so quickly.

Daoud stands his ground: ‘As a broker, I am obliged to stay unbiased. However, we must call a spade a spade, and Macquarie has offered the best customer service over the last 4-5 years. To remain competitive, other banks must reduce their rates as much as possible.’

Not sure what your next move should be? Our expert brokers are always with you if you have questions or concerns.

You can always ask with just one click!

• Email us today at
• Call us on 1300 796 937
Book a chat with our friendly customer service team

Stay tuned for our upcoming blogs to know how much you need to deposit to get one step closer to your dream home!

More Topics