Upmarket Mansion Street, in Bellevue Hill, Sydney.

Rates hit Australian home-loan approvals

Number of mortgages granted unexpectedly drops 1pc in July, the most in five months

Australian home loan approvals unexpectedly fell in July by the most in five months as the highest interest rates among major developed economies discouraged buyers from entering the market.

The number of loans granted to build or buy houses and apartments declined 1 per cent from June, when they rose a revised 1 per cent.

This adds to evidence that the economy is weakening after government reports last week showed retail sales unexpectedly fell, employers unexpectedly cut 8,800 workers and the nation recorded its seventh straight monthly trade deficit.

Many economists expect Reserve Bank governor Glenn Stevens will resume lowering rates in November from 3.5 per cent after cuts in May and June.

"Potential buyers are reluctant to return to the property market despite looser monetary settings," said Katrina Ell, an economist at Moody's Analytics in Sydney. "Until there is a sustained improvement in sentiment, housing finance growth will keep disappointing."

The total value of loans fell 1.8 per cent to A$20.1 billion (HK$162 billion) in July.

The value of lending to owner-occupiers declined 1.4 per cent from a month earlier. The value of loans to investors who plan to rent or resell homes dropped 2.7 per cent.

First-home buyers accounted for 19.2 per cent of dwellings financed in July, up from 18.5 per cent in June and higher than 16.5 per cent a year earlier.

Australia's economy slowed last quarter on weaker housing and rising imports. Gross domestic product advanced 0.6 per cent from the previous three months, when it rose a revised 1.4 per cent.

Australian home-building approvals in July declined by the most in almost a decade as weakness outside the resources industry hurt housing. A private report last month showed sales of new homes dropped to the second-lowest level on record in July.

Australian house prices unexpectedly rose in the second quarter, ending five straight quarters of declines.

"The housing market is just going sideways," said Spiros Papadopoulos, of National Australia Bank.

This article appeared in the South China Morning Post print edition as: Rates hit Australian home-loan approvals