Mortgage lending excluding refinancing fell by 2.4 per cent to $16.5 billion in May, confirming economists' predictions of a pre-federal election "strike" by housing investors.
The value of loans to owner-occupiers was 18 per cent lower than a year earlier, according to seasonally adjusted figures released by the Australian Bureau of Statistics on Thursday, falling by 2.7 per cent in the month to $12.1 billion.
Investor loans dropped by 1.7 per cent in value to $4.3 billion, down 27.8 per cent for the past 12 months.
St George chief economist Besa Deda was among those predicting a decline in lending values as housing investors hedged bets on the May federal election result.
A Coalition victory took reforms to negative gearing and the capital gains tax off the agenda, with signs emerging in recent weeks the property market downturn has passed its nadir.
Westpac senior economist Matthew Hassan said a flat result on monthly volumes was a slight upside surprise, but broadly in line with other indicators suggesting Australia's housing market correction was starting to stabilise around the middle of the year.
BIS Oxford economist Maree Kilroy said the influence of federal government income tax cuts and the Reserve Bank rate cuts would begin to flow through in the third quarter.
"However, a cautious outlook for inflation and wages growth underpins our expectation for a further rate cut the end of the year," Ms Kilroy said.
Total lending to households in May fell by 1.3 per cent to $30.52 billion when refinancing and personal loans were factored in.
This was offset by a 12.1 per cent increase in lending to businesses to $41 billion for the month.
Lending to businesses has climbed 34.7 per cent in a year.
The Aussie dollar climbed from 69.55 US cents to 69.62 US cents within 20 minutes of the release of Thursday's data.