Australian Home-Loan Approvals Drop for Seventh Month

By Jacob Greber

Oct. 8 (Bloomberg) -- Australian home-loan approvals declined for a seventh month, supporting the central bank's decision yesterday to cut the benchmark lending rate by one percentage point, the most since a recession in 1992.

The number of loans granted to build or buy homes and apartments fell 2.2 percent from July, when they slid a revised 0.9 percent, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg News was for a 1 percent decline.

Demand for new homes may climb in coming months after Reserve Bank of Australia Governor Glenn Stevens cut the overnight cash rate target to 6 percent, the lowest in almost two years, on signs the economy's expansion is slowing more than forecast. Home-buyers have also become less willing to borrow after companies such as Qantas Airways Ltd. and Ford Motor Co. started firing workers.

``Stricter bank lending and general negative sentiment should act to restrain lending,'' Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today's report.

Australian lenders have taken ``a more cautious attitude to lending'' and tripled provisions for bad debts, according to a Reserve Bank report last month.

The Australian dollar was little changed after today's report. It traded at 71.01 U.S. cents at 11:34 a.m. in Sydney from 70.98 cents when the report was released and 71.50 in late Asian trading yesterday.

Mortgage Payments

House prices declined for the first time in almost three years in the second quarter, the government said on Aug. 4, after banks raised mortgage rates and rationed lending because they faced higher funding costs amid the global credit squeeze.

Yesterday's cut to the benchmark lending rate was twice as much as economists forecast.

``An unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers,'' Stevens said yesterday.

Australia's four biggest banks, led by Commonwealth Bank of Australia and Westpac Banking Corp., cut their standard variable home loan rates by 80 basis points after the decision.

That will reduce the monthly repayments on an average A$250,000 ($178,000) mortgage by almost A$140. About 90 percent of Australian home buyers have variable interest-rate loans that traditionally move with the central bank's benchmark.

Australia's economy grew 0.3 percent in the three months through June, the slowest quarterly expansion since the end of 2004, as consumer spending contracted for the first time since 1993.

Consumer Confidence

Credit provided by banks and financial institutions to home buyers rose 0.4 percent in August, the smallest monthly increase in 22 years, according to Reserve Bank figures.

A separate report showed house-building approvals fell for a second month.

Australian consumer confidence plunged 11 percent in September, according to a Westpac Banking Corp. survey taken before yesterday's interest-rate cut and released in Sydney today.

Households spent almost 40 percent of their incomes on mortgage payments in the June quarter, the most in the 22 years that the Real Estate Institute has measured affordability.

The total value of lending fell 3 percent to A$17.5 billion in August, today's report showed.

Lending to owner occupiers declined 2.1 percent, while the value of lending to investors who plan to rent or resell homes dropped 5 percent.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net