Home lending fell sharply in April amid widespread speculation that interest rates would rise in May, in another sign the housing market is cooling.
Borrowing for housing fell 6.4 per cent to $30.99 billion, the Australian Bureau of Statistics said on Friday.
Economists had been expecting a 0.3 per cent dip following a 1.6 per cent rise in March.
"New lending has nose-dived as droves of potential buyers put their plans on ice while they wait to see what impact the interest rate hikes have on the property market," said Ratecity.com.au research director Sally Tindall.
The drop may have been compounded by the federal election and ANZAC Day and Easter falling on consecutive weekends, which likely softened demand and delayed the processing of loan applications.
"Overall though it is clear momentum in the housing market has turned with the annual rate of growth well negative for owner-occupiers at minus 12.8 per cent, with recent growth coming from investors," said NAB's director of economics and markets, Tapas Strickland.
Borrowing for owner-occupiers was down 7.3 per cent to $19.91 billion in April, the largest fall since May 2020.
Borrowing for investors fell 4.8 per cent, snapping nine months of consecutive growth.
Despite the sharp decline, lending was 61 per cent above the pre-pandemic levels seen in March 2020, and also above levels from October 2021.
"We expect further falls in new loan growth in the coming months, as the series is still extremely elevated," wrote JP Morgan economist Jack Stinson in a research note.
"The level of new loan commitments (is) still about 70 per cent higher than the level in December 2019, whilst the housing market looks set to soften further as variable mortgage rates move higher."
NSW and Victoria saw the biggest dip in borrowing for owner-occupiers, 12.6 per cent and 9.7 per cent, respectively, in line with falling house prices in Sydney and Melbourne.
The drop was less steep elsewhere and actually rose 5.7 per cent in Tasmania.
Seasonally adjusted borrowing for first home buyers fell 4.4 per cent nationally and was 34.3 per cent compared to a year ago.
"It's been a tough slog for first home buyers trying to get into an over-inflated property market, so it's no surprise to see these numbers dwindle," Ms Tindall said.
Growth in house prices has been slowing since mid-2021 as properties became unaffordable, consumer confidence soured amid cost of living pressures, and fixed-rate mortgages began to trend higher.
Maree Kilroy, senior economist for BIS Oxford Economics, said she expects the variable rate to lift by one percentage point to about 3.5 per cent by the end of this year.
Commonwealth Bank and ANZ on Friday both raised fixed home loan rates for owner-occupiers and investors, following the lead of NAB and Westpac.
"As a result, none of the big four banks now offer a fixed rate under three per cent, with the vast majority of owner-occupier rates starting with a '4' or '5'," said Ms Tindall.
Economists expect the RBA board will endorse a further increase of at least 25 basis points when it meets next Tuesday.
HSBC on Friday predicted hikes of 25 basis points in June, July, August and November, to 1.35 per cent by the end of the year and 1.85 per cent by mid-2023.
"We are in the more dovish camp, thinking that a cash rate near two per cent will be enough to slow growth and dampen inflation," wrote chief economist Paul Bloxham.