New Loan Commitments – March quarter 2025

Loans up on same time last year.

The latest Australian Bureau of Statistics ‘Lending Indicators’ release shows that new loan commitments in March quarter 2025 fell in seasonally adjusted terms on the prior quarter. In original numbers, new loan commitments were up by 5% on the same month last year.

The total 5% increase includes a modest 1% year-on-year rise in First Home Buyer loans, highlighting the continued affordability challenges for those looking to enter the market. Annual growth in loans to Next Time Buyers matched the total lending increase of 5%, while Investor loans showed more strength, posting a year-on-year increase of 9%.

New loan commitments, March quarter 2025

Investors have been doing the heavy lifting

In annual terms, there were 514,104 new loan commitments approved in the year to March 2025, which represents a 14% increase from the trough of 451,000 loan commitments recorded at the trough in the year to September 2023. This represents around 4.6% of the total dwelling stock.

Investors have been doing the heavy lifting, with loans to investors in the year to March 2025 some 27% higher than the twelve month period to September 2023. This contrasts with increases of 9% and 7% in First Home Buyer and Next Time Buyer loans respectively from their previous twelve month lows.

As a result, the share of lending by investors has steadily increased, from accounting for a low of 23% of total loans in the year to March 2021, to 38% in the most recent twelve months to March 2025. The investor share, however, remains down on its peak of 45% in 2014/15 financial year.

There has been a corresponding drop in the share of owner occupier loans, with Next Time Buyers reporting a greater decrease in share. Interestingly, despite the current affordability challenges in the market, loans to First Home Buyers remain higher than pre-COVID levels. We suspect that this is reflective of the increasing side of the First Home Buyer pool as the Millennial generation progressively moves into family-forming age cohorts.

New loan commitments by purchaser type, Australia (Moving Annual Totals)

Investors have been gravitating to new housing

Notably, investors are gravitating to the new housing market. Land and construction loans to owner occupiers were boosted in 2021 by low interest rates and purchaser incentives to stimulate construction, but have now dropped back significantly. In contrast, investor presence in the new housing market was limited in 2021, but has since steadily increased, with investor loans for land and construction of new dwellings in the year to March 2025 almost double the levels in 2020.

Consequently, while investors have traditionally favoured new apartments, they now make up nearly half (43%) of loans for land and new dwellings. Factors likely to have assisted this shift include recent concerns around apartment build quality, and higher price points required for off-the-plan apartments relative to new house/land packages caused by escalated construction costs.

The lack of investor demand for off-the-plan apartments is providing an opportunity for infill apartment development by Build-to-Rent developers to fill the gap. Meanwhile, greater investor presence in the greenfields will ultimately have implications for rental supply in outer suburban locations as the dwellings are progressively built.

Land and construction loan commitments by purchaser type, Australia (Moving Annual Totals)

State and Territory Trends

The national trends in lending incorporate differences across the states. Despite the affordability challenges, First Home Buyer activity remains above pre-COVID levels in all states, with Victoria, South Australia, New South Wales and Australian Capital Territory showing the most resilience relative to pre-COVID levels, although Frist Home Buyer loans in New South Wales and Australian Capital Territory are now trending downwards, as are loans in Western Australia.

Although picking up across all states over the past 12-18 months, Next Time Buyer demand remains relatively soft and below pre-COVID levels. The exception is Western Australia, where Next Time Buyer demand is elevated. Stagnant and declining house prices through the 2010s reduced the opportunity for home owners to trade upwards, so the recovery of prices in the state since 2021 has seen significant pent-up activity take place.

Investors have had the biggest uptick in new loan activity, with loans to investors in all states running at annual levels above the prior 2022 peak that was supported by ultra-low interest rates. The exceptions are Victoria and Australian Capital Territory. In Victoria, there have been well reported headwinds (tenant regulation, land tax increases, etc) that are likely to have discouraged investor demand. Meanwhile, investors have piled into Western Australia, with investors now being the largest purchaser segment.

Residential dwelling building approvals by type, Major States (Moving Annual Totals)

Outlook

Purchaser activity is likely to trend upwards nationally through 2025, supported by projected interest rate cuts through the remainder of 2025, and underpinned by strong population growth and an undersupply of dwellings.

While First Home Buyer demand will remain impacted by challenging affordability, expected lower interest rates, together with incentives such as the Federal Government’s Help to buy and Home Guarantee Schemes, should facilitate further growth in First Home Buyer demand, which in turn provides a market for Next Time Buyers to sell into and consequently support growth in Next Time Buyer Demand.

The recent improvement in investor demand is also likely to be sustained. Lower interest rates and rising rents (albeit at a slowing rate) will improve the rent vs mortgage equation and attract investors. Lower fixed-interest returns and Trump-related ructions in the equities market may also see more investors seek the refuge of residential investment. At this stage the focus of investors in the new housing market has been in the greenfields, but there is potential for this to move into the off-the-plan market is prices rise through the year and developers are able to deliver new apartment product at more affordable price points.

Lower interest rates have the potential to afford more upside to purchaser activity in New South Wales and Victoria, with these markets having been more muted since interest rates started rising in 2022. Meanwhile, there are signs that affordability challenges in Queensland, South Australia and Western Australia now emerging and impacting purchaser demand. Lower interest rates in 2025 should provide more support to demand in these markets, although the upside is likely to be more moderate.

For further insight into housing market activity and what it means for your business, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]