Home loan size drops for first time in 20 years - 18 April 2001

Wednesday, 18 April 2001

The average size of new home loans across Australia decreased for the first time in 20 years in calendar 2000, according to figures released today by National Australia Bank.

The figures are based on recently released data from the Australia Bureau of Statistics on all owner occupied lending. The data was analysed by the National - the fastest growing home loan provider of the major banks - to derive average home loan sizes.

The average size of all new home loans decreased by 0.2% from $132,840 in 1999 to $132,515 in 2000, reversing a trend of continuous increases since at least 1981. While this is a marginal change, it is a significant break from the consistent growth of at least the past 20 years.

The decrease in 2000 is in contrast to growth of 12.6% in average home loan size in 1999, the largest annual increase in more than a decade. Over the past five years, the average annual increase has been 8.0%.

On a state-by-state basis, average home loan size decreased last year in New South Wales, Queensland, Tasmania and Western Australia.

The National's General Manager, Personal Financial Services, Mr Ken Hodgson, said the slight drop in average loan size was partly explained by the increase in home loan rates through 2000.

"Rates climbed by 1.5% during the year, reducing the borrowing capacity of home buyers.

"However, this was not the only factor because previous upward rate moves have not cut the average mortgage size. For example, rates spiked by 1.75% in 1994, but the average mortgage size still increased by more than 6% compared to the previous year.

"In 2000, home buyers were more sensitive to interest rate increases after almost a decade of rising household gearing levels," Mr Hodgson said.

The increase in gearing levels is reflected in the growth in the average home loan size over the past five years. Nationally, the average loan has increased by 38% since 1995. Victoria was the highest growth state, with average loan size jumping by almost 50% over the same period.

He said other factors which may have kept a lid on mortgage sizes in 2000 was the leveling of residential property prices and the introduction of the GST, which may have dragged forward loan volumes into 1999.

Mr Hodgson said the long-term trend showed that home buyers were comfortable with borrowing larger amounts.

"We are seeing a new generation of home buyers that is not afraid of borrowing up to lenders' limits. However, they also demand loans that allow fast repayment of principal and are taking full advantage of these features.

"Products such as the National Tailored Home Loan, which was the first loan to make it easy for home buyers to accelerate loan repayments and reduce principal quickly, are more popular than ever. More than one in four National home loan customers are substantially ahead of their minimum repayment schedule.

"It's clear that the set-and-forget home loan with a term of 25 years is an obsolete notion for today's home buyer," Mr Hodgson said.

* The information contained in this media release is for media advice purposes only. The contents are true and correct at time of publishing/issuing, however may change over time. For further information about NAB products or rates, please go to Interest Rates, Fees & Charges