Australians are taking on record amounts of debt when buying homes as rising property prices push more first-time buyers out of the market in favour of investors.

The latest Australian Bureau of Statistics home lending data this week showed that, nationally, owner-occupier mortgages hit an average $625,055 for the first time in May and they’re poised to break that record again in June.

Average new loans for owner-occupiers were at record highs in Queensland ($586,627), South Australia ($541,775) and Western Australia ($538,860).

The state where the biggest loans are needed remains NSW, which has an average new owner-occupier mortgage of $767,584. However, this is short of its peak from January 2022 of $803,235.

Victoria is the only state where the average new loan size fell in May (down 1 per cent to $601,891). It is also well short of its January 2022 peak of $651,364.

The spiralling loan amounts are due to consistent hikes in property prices over the past 18 months, which have come despite the Reserve Bank hiking interest rates to their highest levels in more than a decade.

RateCity research director Sally Tindall told TND that those hikes had placed an extraordinary squeeze on buyers, who had to find larger deposits to get their feet in the door.

“People’s maximum borrowing capacity has been severely reduced as a result of the rate hikes,” Tindall said.

Who’s buying

Many other home-buyer hopefuls are simply priced out of the market, however, with the ABS data also showing that conditions favour investor lending more than first-timers.

New lending to investors rose 29.5 per cent over the year to May, the ABS figures showed, while lending to first-home buyers was up far more slowly (12.2 per cent).

First-home buyers are also retreating from the market faster as economic conditions bite, with lending falling 2 per cent in May (compared to a 1.2 per cent fall for investors).

The ABS said the largest rises in investor loans were in NSW (up 24.8 per cent), Queensland (up 48.2 per cent) and Western Australia (up 73.9 per cent).

ABS head of finance statistics Fiona Cotsell said investor loans were still growing more strongly than those to owner-occupiers.

“In May, the value of new loans to investors in Queensland reached an all-time high of $2.4 billion, exceeding Victoria for the third consecutive month,” she said.

“This is mainly due to investors taking out larger loans in the sunshine state compared to this time last year. We saw the average loan size for investors in Queensland increase by 14.3 per cent since May 2023, from $508,000 to $580,000. Comparatively, the average loan size in Victoria fell 3.2 per cent over the same period, from $584,000 to $566,000.”

Tindall said banks were requiring customers to pass loan stress tests in excess of 9 per cent before approving a mortgage, which was unachievable for many people getting into the market.

“It’s astounding to think owner-occupiers are, on average, taking out larger loans than ever before despite the fact the cash rate is sitting at a 12-year high,” Tindall said.

“Currently, the average new owner-occupier rate is 6.27 per cent – a difficult benchmark to clear.”

Why people are buying

Investors have come back to the market to chase rising rental yields amid near record low vacancy rates across the country, which have made buying a home to rent it out more attractive.

And while investors also face an interest squeeze, they’re partly insulated by federal tax breaks such as negative gearing, which experts say artificially increase borrowing power.

The cost of those programs to the federal government in foregone revenue is set to more than double over the next decade, according to alarming costings published earlier this month.

Loans to investors have grown to dwarf those to first-home buyers since Covid-19, with the ABS figures in May showing a $5 billion gap that has opened up in new mortgage commitments.

It has been particularly evident over the past 12 months as property prices have risen despite higher interest rates too. The value of loans to investors rose $1.1 billion dollars to $10.5 billion in May.