Increase hits housing market as home loan approvals dip

SYDNEY - Australian home-loan approvals fell in October after central bank Governor Glenn Stevens became the first Group of 20 policy maker to increase borrowing costs since the height of the global financial crisis.

The number of loans granted to build or buy houses and apartments dropped 1.4 per cent to 63,865 from September, when they gained a revised 3.3 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 21 economists surveyed by Bloomberg was for a 2 per cent decline.

Approvals may slide further after Stevens boosted the benchmark interest rate last week for a third straight month and the government reduced grants to first-time buyers from as much as A$21,000 in October. Consumer confidence fell this month, a separate report showed yesterday.

"Headwinds from rising mortgage rates will take some heat out of the market as affordability deteriorates, with first-home buyers more susceptible to, and deterred by, these rises, said Alex Joiner, an economist at ANZ in Melbourne.

First-home buyers accounted for 26 per cent of dwellings that were financed in October, down from 26.1 per cent in September, the statistics bureau said.

This year's interest-rate increases have added about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd's government distributed more than A$20 billion in cash handouts to households.

Demand for mortgages surged in the first half of the year amid record purchases from first-time buyers after Treasurer Wayne Swan tripled to A$21,000 a grant to buyers of new homes, and doubled to A$14,000 payments for those buying existing dwellings. House prices have gained 10 per cent this year.

In May, Swan extended the increases through to September, when they were partially reduced. The payments will be cut to their original level of A$7000 at the end of this year.

The total value of loans fell 1.4 per cent to A$23.3 billion, the report showed. The value of lending to owner-occupiers declined 1.7 per cent in October. The value of loans to investors who plan to rent or resell homes slipped 0.6 per cent.

- BLOOMBERG