Economic confidence fuelling demand for home loans

National economic confidence is a factor many home buyers take into account when considering refinancing, purchasing a larger home or diving into the property market for the first time.

Nobody wants to make a substantial financial commitment if there is a risk of bad economic news that affects consumer confidence making prices head south.

Right now, the data suggests there’s little chance this will happen. Consumer confidence continues to rise despite the dampening effects of the pandemic as is seen across a range of loan applications. 

Equifax’s latest Quarterly Consumer Credit Demand Index says vehicle loan applications – which are often an indicator of confidence – have increased by a third since Sydney and Melbourne came out of lockdown. 

Home loans have registered a 15% surge and mortgage enquiries are up 30%, according to Equifax. Buy Now, Pay Later loans (BNPL) have also surpassed pre-pandemic levels.

Interestingly, the government agency APRA – the Australian Prudential Regulation Authority –  has recently modified the home lending rules to scale back the borrowing levels. APRA is concerned the property market could become overheated.

To prevent this, lenders must now apply a 3% buffer – up from 2.5% – to ensure clients can handle future interest rate increases. This change falls far short of taking a sledgehammer to the market and increasing interest rates.

The takeaway is this: the community is showing resilience and confidence in the Australian economy despite suffering extended lockdowns and dislocation created by the pandemic. Rising values in real estate are a reflection of this greater confidence.  

This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.