Investment finance picked up to $11.7 billion in May from $11.3 billion in April, the first increase in three months.
While the slowdown in housing finance has been driven largely by investors, as lenders have tightened credit, investor borrowing is showing signs of stabilising, UBS economist George Tharenou said.
"Home loans have moderated over the last year," Mr Tharenou wrote in a research note after the figures. "That said, today's data shows signs of stabilisation (particularly investors), which suggests that price growth is likely to cool over the coming year, but does not indicate a collapse."
Concerns are rising about whether Australia's housing market is likely to suffer a fall in prices due to an oversupply of apartments, particularly in Melbourne and Brisbane.
The total monthly new lending figure of $32.3 billion was 1 per cent higher than April's $32 billion. Loans to owner occupiers - excluding refinancing of existing loans - ticked up 0.4 per cent to $13.5 billion.
The Reserve Bank of Australia cut interest rates to a record low 1.75 per cent in early May. The numbers follow earlier figures last week showing approvals of new dwellings fell 5.2 per cent in May, led by an 11.3 per cent decline in the apartments, townhouses and semi-detached dwellings traditionally favoured by investors.
The housing industry remains hopeful that with the election out of the way, demand for homes will increase.
"With the federal election result now clear, potential homebuyers are likely to return to the market with a great deal more certainty," Housing Industry Association senior economist Shane Garratt said. "The prospect of another interest rate reduction later in the year will be welcomed by those looking to enter the market. We expect new home lending volumes to strengthen over subsequent months as a greater number of apartments currently under construction reach settlement."
Loans to first home buyers also picked up in May. The 8,488 new loans issued was the biggest number since December's 9,367, the ABS figures showed.
In the 12 months to May, loans to first home buyers rose 3.6 per cent from a year earlier to $34.5 billion.
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