The chief executive of Westpac-owned St George Bank, George Frazis, pictured, has predicted first home buyers will come back into the housing market next year, helping to support a broader-based increase in demand for mortgages.
The share of new loans being issued to first home buyers is at a nine-year low as investors bid up house prices, but Mr Frazis said he believed "natural demand" would trigger a broader recovery in the property market next year.
There has been concern over the dominant role of investors in NSW, where St George controls about 11 per cent of the mortgage market.
In an interview with BusinessDay, 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 to its fastest pace next year since the global financial crisis, and Mr Frazis says this would come partly from pent-up demand for homes.
"I think it's just natural demand," he 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.
At the other end of the spectrum, the Reserve Bank has expressed concern that investor lending accounts for 40 per cent of all home loan approvals in NSW, a share not seen since the heady days of 2004.
Despite this, Mr Frazis said recent activity in the property market was sustainable because it was not being driven by households borrowing as aggressively as in the past, and it had followed a soft patch in NSW, the country's biggest market.
"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.