Home lending by non-bank lenders fell in a heap in September, with raw figures showing a 22% plunge in the number of home loans made.

Figures from the Australian Bureau of Statistics yesterday show that the credit crunch took a heavy toll on confidence in non-bank and wholesale lenders and funders. In seasonally adjusted terms, the fall in lending by non-banks was a more sedate, but still dramatic, 10.1%. The original and seasonally adjusted figures from the Bureau saw double-digit falls: the biggest in years, after the August credit freeze stopped wholesale funding and brought Rams Home Loans to the edge of collapse.

The Reserve Bank yesterday suggested that the credit freeze hadn’t had a significant impact on Australia, but just hours after this statement, the ABS produced Housing Finance figures for September showing the crunch had affected lending by non-banks in particular.

The RBA Governor, Glenn Stevens had this to say yesterday:

In Australia, the tightening in credit conditions resulting from the global turmoil has been less pronounced than elsewhere. Wholesale funding costs have risen a little compared with official rates, and some borrowers have experienced an increase in interest costs as a result, but the flow of credit to sound borrowers does not appear to have been impaired.

But the ABS said the Housing Finance figures showed a real impact on lending. The Bureau said that:

… the number of owner occupied dwellings financed by non-banks (seasonally adjusted) decreased by 10.1% in September 2007 compared with August 2007, after a decrease of 0.9% in August 2007.

This fall was driven by a decrease of 12.6% in financing by wholesale lenders.

And the total value of dwelling finance commitments, excluding alterations and additions, decreased 2.7%. Owner occupied housing commitments decreased 2.5%, while investment housing commitments decreased 3.3%.

The number of commitments for owner occupied housing finance decreased by 2.4% and the number excluding refinancing decreased by 2.5%. And the Bureau said: “… the number of owner occupied dwellings financed by banks (seasonally adjusted) decreased by 0.4% in September 2007 compared with August 2007, after an increase of 2.0% in August 2007.”

So it is possible to say that the biggest influence on housing finance in September was the credit crunch because wholesale lenders finance the non-bank lending sector and one of the biggest surprises in August-September were the problems that hit Rams and other non-bank lenders depending on the wholesale markets.

Rams couldn’t refinance more than $6 billion in short term debt here or in the US because of the credit freeze: its shares collapsed and eventually the name and the branch network of company and franchised shops were sold to Westpac for around $140 million. According to the ABS’s figures the number of loans financed by non-bank lenders in September was a seasonally adjusted 11,930, the lowest for well over a year. That compares to 13,268 in August and 13,307 in September last year.

The influence of the wholesalers can be seen in their figures: the number of home loans financed by wholesalers (part of the non-bank lenders total) amounted to a seasonally adjusted 6,279, compared to 7,187 in August and 7,580 in September 2006. That’s the lowest they have been for well over a year or more.

Bank home loans fell to a seasonally adjusted 50,766 in September, from 50,981 in August, but were up on the 50,082 in September of last year. The original figures for September (not seasonally adjusted) showed even bigger falls. They are a more accurate indication of the problems caused by the credit freeze and Rams’ problems in the month.

You could say the seasonal adjustment disguises the true extent of the fall because of the smoothing it brings to the raw figures. The credit freeze and its impact on sentiment wasn’t a seasonal factor in this case, it was a one-off event. The number of loans from non-banks fell 22% and from wholesale lenders by a quarter: 25% from August. Bank home loans were down 11.7% in original terms from August.

What is also interesting is that people wanting to lend didn’t switch to banks for their home loans after deciding not to borrow through non-bank lenders (and, how many of the non-bank lender deals were old ones being formalized in September?). Bank lending fell, which is an interesting consequence.