Property lending drops sharply as mortgage arrears rise to 12-year high

Financial data shows that new lending for property investors declined at the fastest pace on record during the three months leading up to September. This drop coincides with landlords facing higher taxes alongside falling property values and rising interest rates. At the same time, the Commonwealth Bank announced that the proportion of its borrowers struggling to make mortgage payments has climbed to a 12-year high.

During the quarter, the share of borrowers who fell 90 days or more behind on their payments rose from 0.73% to 0.8%. This trading update prompted Treasurer Jim Chalmers to defend government budgetary reforms, while Morningstar senior equity analyst Nathan Zaia noted that banking sector arrears are following an upward trend that has likely not peaked yet. S&P Global director Nico de Lange stated that despite these increases in arrears, the banking sector is not experiencing significant overall stress.

Figures from the Australian Bureau of Statistics revealed that the value of new investor loans fell by nearly a third in the September quarter, marking the largest decrease in official records dating back to 2002. ABS head of finance statistics Mish Tan explained that investor activity is being impacted by multiple elements, including tax adjustments and expectations of lower home prices. The Albanese government implemented changes to capital gains tax for investors and removed negative gearing for new landlords purchasing existing dwellings.

Investor housing appetite dropped significantly as new lending figures recorded a historic quarterly contraction.

Understanding lending trends

While investor participation dropped by more than 30%, new lending to owner-occupiers decreased by 5.3% as part of a general 15% quarterly reduction in overall new loans. First home buyer lending dropped by 8.6% during the same period. Chalmers argued that the ABS data indicates reduced competition for first-time buyers due to investors leaving the market. Conversely, the Coalition criticized the measures, with shadow housing minister Andrew Bragg stating that the higher housing taxes discourage investment when more housing is needed.

Why it matters

This shift in the housing market changes borrowing dynamics and housing accessibility for buyers and investors alike. The contraction in investor activity and rising mortgage arrears reflect the combined pressure of higher interest rates and new tax policies on the banking sector and property market.