This year has been one for the record books, with more money being thrown into property than ever before.

Record low interest rates, record levels of refinancing, record renovation works and record house prices… it’s no wonder Australians have borrowed more to spend on housing than ever before.

And that’s just in the first 10 months of the year, with the latest lending data from the Australian Bureau of Statistics covering the year up to October.

$305 billion worth of home loans were issued in the first ten months of the year. Picture: realestate.com.au

According to the ABS, Australians borrowed more than $305 billion to spend on either buying or renovating property between January and October.

That’s more than they did in the entirety of 2020, or any other year on ABS records.

To put that into perspective, $305 billion is almost enough money to buy every single residential dwelling in Tasmania and the Australian Capital Territory.

Comparing the first 10 months of this year to last year, Cameron Kusher, PropTrack Executive Manager of Economic Research, said there’s been a big increase in mortgage lending.

“Over that period, the total value of lending has increased by 44.8%,” Mr Kusher said.

“Breaking that out a bit more, new investor lending has increased by 74%, first homebuyer lending is 41.2% higher, and new non first homebuyer, owner-occupier lending is 54.2% higher.”

Mr Kusher said a number of factors have driven these record highs.

“Of course, low interest rates have been a big driver, which has also led to higher prices, which in-turn means borrowers have to take on more debt when entering the market or buying a new property.”

So – what have they been spending it on?

Owner-occupier lending surges

Owner-occupier lending shot through the roof this year, although has moderated in recent months.

In total, people buying a home to live in have taken on $219 billion in debt between January and October.

The bulk of that was directed towards existing property, with almost $160 billion issued for the purchase of established homes.

Unsurprisingly, the most money was borrowed in our most populous state, New South Wales, where the average price of a residential property soared to $1.1 million in the September quarter – a rise of $65,100 in just three months.

Loans for owner occupiers made up the bulk of mortgages. Picture: realestate.com.au

Paulette Ghaleb, a sales manager at LJ Hooker in Merrylands in Sydney’s west, said conditions were the strongest she’s seen in her 29-year career.

Ms Ghaleb said in previous years units were a tough sell in her neck of the woods, often sitting on the market unless they were reduced drastically.

“Now, most of the units that I’ve had, I’ve sold them within a week or two,” Ms Ghaleb said.

That level of demand for apartments hasn’t travelled to the country’s west to the same extent, according to The Perth Property Co. director Nadija Begovich.

“The established home market is hectic, with homes being listed for sale one day and snapped up the next,” Ms Begovich said.

“The same too with villas and townhouses, they’re moving quickly with some properties going within their first weekend of launching to market.”

Lending for new homes and the construction of homes was also supported by government schemes, such as HomeBuilder and the First Home Loan Deposit Scheme.

The government’s HomeBuilder scheme drove demand for construction loans. Picture: Getty.

So far this year, borrowers have taken out $14 billion for the purchase of newly built homes, while $30 billion worth of construction loans were taken out. Again, that’s higher than the entirety of 2020 or any other year on ABS records.

But with the HomeBuilder scheme ending earlier this year, and the continued surge in house prices, first homebuyers have been getting squeezed out.

The amount borrowed by first homebuyers is trending down as the year goes on, falling for the ninth consecutive month in October.

“Unfortunately the buyers that are bearing the brunt of it are first homebuyers,” Ms Ghaleb said.

Investor lending on the rise

After sitting on the sidelines during the initial stages of COVID-19, investors have been playing catch up.

New investor loan commitments for housing reached near-record levels in October, and have now risen for 12 consecutive months.

That takes the total amount borrowed by investors so far this year to $85.9 billion.

Of that, more than $68 billion dollars went towards existing property, while $7 billion was borrowed to build a property. $4.6 billion was taken out to purchase a newly built home.

Mr Kusher said investor confidence had recovered after slumping in early 2020.

“Investors have been returning to the market driven by the increase in equity in their own homes and/or other investment properties and the shortages of rental supply which have become evident in many parts of the country,” said Mr Kusher.

Renovator loans booming

With lockdowns and border closures forcing many to spend extended periods at home, the renovation frenzy has continued into a second year.

And with supply and skills shortages nationwide, renovations aren’t coming cheap.

Owner-occupiers have already borrowed more than $4 billion dollars to put towards renovations this year, while investors have taken out $1.5 billion to revamp their properties.

Lockdowns and flexible working arrangements drove a renovation frenzy. Picture: realestate.com.au

Mr Kusher said the huge number of Australians choosing to renovate their homes is largely due to household savings increasing through COVID.

The latest Gross Domestic Product (GDP) figures from the ABS showed the household saving ratio surged to 19.8% in the September quarter, which is the fastest rise since December 2008.

Economists at the Commonwealth Bank estimate around $50 billion was saved over the three months to September, and around $240 billion over the COVID period.

Mr Kusher said a shortage of new property listings during the lengthy lockdowns also drove homeowners to renovate.

“It’s been difficult for people to upgrade because of the ongoing shortages of supply available for sale so increasingly people have been staying where they are and looking to do extensions and upgrades to their existing home.”

Refinancing activity up and up

As was the case with new loans, record low mortgage rates spurred on a refinancing frenzy in 2021, as mortgage holders sought a better deal.

In the first 10 months of the year, a record $150 billion worth of mortgages were switched to another lender.

That’s $10 billion more than the entire of 2020, and more than any other year on ABS records.

ABS Lending Indicators Oct 2021 | seasonally adjusted.

Refinancing activity surged during the pandemic as many fixed-rate mortgages were slashed below 2%.

PropTrack economist Paul Ryan said the unwinding of those ultra low borrowing costs can partially explain the recent surge in activity. Refinancing peaked in July when a record $17.2 billion mortgages were switched to other lenders during the month.

“Those very, very low rates being retracted spurred a lot of people to try and lock in those rates while they were still available,” Mr Ryan said.

Tempting refinancing offers and increased property values also drove demand.

“The main factors that drive refinancing activity are interest rate falls, and housing price increases, which means people can withdraw equity,” Mr Ryan said.

Where to from here?

Can we expect more of the same in 2022?

While total lending activity has been trending lower for the past three months, it still remains 32% higher than a year ago.

Total lending activity has trended lower in recent months. Picture: realestate.com.au

Strong conditions are likely to stick around for a while yet, although maybe not at the same pace we’ve experienced during 2021.

With the prospect of higher interest rates, lenders have been lifting their fixed mortgage rates, while new measures by the banking regulator APRA to lift serviceability buffers, as well as affordability constraints, are also expected to have a cooling effect on lending.

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