Property investors turning their back on the market (Photo by Catherine Ivill, Getty Images)

Lending to property investors contracted for the third consecutive month in September, the first time it’s happened since record-keeping began and the largest fall since 1991.

Meanwhile, owner-occupier loans grew by just 0.4%, indicating that they are the ones driving price growth this time around.

With Australians holding some of the most household debt in the world, the RBA will be glad to see households paying some down as interest rates fall.

It looks like the Reserve Bank of Australia (RBA) will be breathing a giant sigh of relief.

After rightfully worrying that interest rate cuts could create a housing bubble, it appears Australians are laying off the debt addiction. Instead of topping it up, households look to finally be paying down their debt, which is among the highest in the world.

Mortgage lending grew by just 0.2% in September, according to the latest Reserve Bank of Australia (RBA) statistics on Thursday. That was in line with the entire private credit market and consistent with record-low lending growth over the last 12 months of just 2.7%.

Meanwhile, lending to property investors actually contracted for the third consecutive month — the first time that’s happened since records began and its largest fall in 28 years. This could indicate two things about a property market, according to REA Group, in which prices continue to rise.

“I think it tells you a lot about who is driving demand, ie not investors,” REA executive director of research Cameron Kusher tweeted. “Also that more principal debt is being paid down by investors given [the] move away from [interest-only loans].”

The reduction of investors in the market is consistent with trend since prices began falling. Investors have made up a smaller proportion of the market, while first home buyers appear to have used falling prices as get into the market. Indeed, owner-occupier mortgages grew by 0.4%, twice the rate of the overall credit market.

While Australian household debt is largely made up of mortgages, lending appears to have slowed right across the spectrum. Personal credit, such as personal loans, actually fell by 0.7% in September and by 4.4% over the last 12 months. The RBA will take some heart in those figures, as Australians pay down debt and remain somewhat cautious on borrowing. After all, if the economy does continue to slow, serious debt levels will only make the comedown worse.

However, there is a catch.

“The RBA is focused on signs of households using lower interest rates to pay off debt faster,” CBA senior economist Belinda Allen said in a note issued to Business Insider Australia.”This could weaken the transmission of lower interest rates into the economy if households pay off debt faster rather than lift spending. The spread between the flow of credit and the stock of housing credit will be important to watch for signs of this choice.”

“A lift in house prices without an accompanying lift in credit growth is the backdrop that would allow further RBA monetary policy action,” she said.

Maybe the RBA has a few more sleepless nights ahead.

Business Insider Emails & Alerts Site highlights each day to your inbox. Email Address Join

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.