A big fall in home loans to investors helped drive down mortgage lending in February but analysts expect a rebound before recent banking regulator action to cool the market starts to bite.
The value of mortgages approved dropped 2.7 per cent to $32.92 billion in February, seasonally adjusted, according to the Australian Bureau of Statistics.
The fall was mainly driven by the number of investor home loans slumping 5.9 per cent in the month, while owner-occupier loans also slipped by 0.5 per cent.
Commonwealth Bank economist Kristina Clifton said the decline was likely to be temporary, with strongly rising house prices in several of the capital cities maintaining positive momentum in new lending for the next few months of data.
However she said after recent Australian Prudential Regulation Authority (APRA) rules, limiting growth in higher risk interest-only loans to 30 per cent of new mortgages, should cause a slowdown in loans from April onwards.
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"We may see a slowing in lending, particularly for investors, as the new APRA rules start to bite," Ms Clifton said in a note.
"In addition, the major lenders have all increased interest rates, particularly for investors and those with interest-only loans, which should also act to cool the market a little."
UBS economists said the figures made it less likely the Reserve Bank of Australia, which has been equally concerned about household debt and housing loans, would raise rates.
"Looking forward, we continue to expect the RBA to initially assess the impact of macroprudential tightening, instead of hiking rates, amid a softer labour market," they said in a note.
However, the UBS economists said in coming months continuing population growth would support demand in the market and soften any downturn.
"Hence, we continue to look for a correction of housing activity ahead, but not a collapse," they added.
