The chief executive of Westpac-owned St George Bank, George Frazis, has predicted first home buyers will come back into the housing market in 2014, helping to support a broader-based lift in demand for mortgages.
With the share of new loans being issued to first home buyers at a nine-year low as investors bid up house prices, Mr Frazis said "natural demand" would trigger a broader recovery in the property market next year.
The comments come amid official concern over the dominant role of investors in NSW, where St George controls about 11 per cent of the mortgage market.
Mr Frazis said the recovery in the housing market was sustainable and investors' dominance would inevitably fade.
"We're still yet to see a big increase in first home buyers coming into the market," he said. "My expectation, however, is that next year we might start seeing more activity in the first home buyers."
Westpac is betting on economy-wide credit growth accelerating in 2014 to its fastest pace since the global financial crisis.
"I think it's just natural demand," Mr Frazis said. "You've got population growth, you've got growth in immigration, particularly in NSW, and then if you look at the supply of housing, that's been constrained for a number of years now, so effectively your first home buyers will eventually come in."
First home buyers accounted for just 13.7 per cent of all new loans approved in August - the lowest share since 2004 - latest figures from the Bureau of Statistics show.
The Reserve Bank has expressed concerns that investor lending had accounted for 40 per cent of all home loan approvals in NSW, a share not recorded since the heady days of 2004.
Despite this, Mr Frazis argued recent activity in the property market was sustainable because it was not being driven by households borrowing as aggressively as in the past.
"You've got to remember, we've had 10 years of very subdued activity, particularly in NSW, so there's a lot of catch-up occurring," he said.
St George, which posted growth of 17 per cent in cash earnings to $1.2 billion last year, also includes Bank of Melbourne, BankSA and mortgage lender RAMS. It is likely to play a key role in Westpac's plan to arrest a decline in its market share in home lending, with St George and Bank of Melbourne upping their market share last year.
Mr Frazis is also targeting the business lending market, which he predicted was approaching "tipping point", which would translate into stronger credit growth in the first half of the year.
The bank's pipeline of approved business loans that had not yet been drawn down had surged 30 per cent in the last year, he said. "My view is that people are looking at opportunities, but they haven't quite yet got to the point where they're pushing the 'yes' button."