Australian investor lending posts record fall as mortgage arrears rise

New lending to Australian property investors recorded its steepest quarterly decline in the three months to September, as higher taxes, rising interest rates and falling property prices weighed on the market. Separately, Commonwealth Bank, the country’s largest lender, reported that the proportion of customers falling behind on mortgage repayments had reached a 12-year high.

Australian Bureau of Statistics figures showed that the value of new investor loans dropped by nearly a third during the September quarter. The decline was the largest in records dating to 2002 and almost twice the size of the previous biggest quarterly fall. Lending to owner-occupiers decreased by 5.3%, while new lending overall fell by 15%.

Mish Tan, the ABS head of finance statistics, said the figures suggested that borrowing costs alone did not explain the retreat by investors. Potential effects of tax changes and expectations that house prices would fall were also influencing activity. In its May budget, the Albanese government announced changes to capital gains taxation for investors and banned negative gearing for new landlords purchasing an existing home.

First home buyer lending also weakened, declining by 8.6% over the quarter. The figures suggested that higher interest rates and concerns about property prices were discouraging prospective homeowners, although the fall was less pronounced than among investors. The number of new investor loans for home construction dropped by 12%.

Treasurer Jim Chalmers defended the budget measures, saying the withdrawal of investors meant first-time buyers faced less competition for existing properties. He said the reforms were intended to help more people purchase their first home, with their benefits expected to emerge over years rather than months. Chalmers argued that the latest lending figures were beginning to show that reduced competition.

The Coalition, which has pledged to reverse the investor tax changes if elected, offered a different assessment. Shadow housing minister Andrew Bragg said the higher taxes were deterring investment at a time when Australia needed more homes, and called for their repeal.

Meanwhile, Commonwealth Bank’s quarterly trading update showed that the share of lending with repayments overdue by at least 90 days had increased from 0.73% to 0.8%. Previous updates showed that arrears had last been higher in 2014. Morningstar senior equity analyst Nathan Zaia said arrears were rising across the banking industry and probably had further to climb, though the increase followed an unusually long period of very low arrears.

S&P Global director of financial institution ratings Nico de Lange said the rise did not appear to indicate significant stress across the banking sector. He said the agency was monitoring conditions closely following five interest rate increases this year.