Refinancing hits another record high

An increasing number of borrowers are switching lenders, with refinancing hitting another record high, ABS lending indicators released yesterday showed.

Home loans refinanced in August hit a total of $18.88 billion, up 5.3% month-on-month, in seasonally adjusted terms.

“We expect the refinancing boom will continue for a number of months as borrowers look for a way to combat rising rates,” said Sally Tindall, RateCity.com.au research director. “An increasing number of borrowers will also start rolling off their ultra-low fixed rates over the course of the next year, many of which will consider refinancing at this time.”

Tindall said the concern is many borrowers may find themselves in mortgage prison as result of rising rates and falling property prices.

“Some borrowers could find themselves in mortgage prison because they don’t pass the bank’s serviceability test or they don’t have enough equity in their loan,” she said.

ABS Lending Indicator also showed that first-home buyers have made a comeback, with the number of loans settled growing 10.4% month-on-month in August. The number is still down significantly year-on-year, though, with 26% fewer first-home buyers entering the market than in August the prior year.

“With property prices dropping as rates rise, first-home buyers are finally getting a look in,” Tindall said. “It’s possible many first-home borrowers were patiently waiting for the latest round of places to open up in the federal government’s scheme to help first home buyers with small deposits.”

In July, an extra 35,000 spots opened up in the First Home Guarantee, where the government acts as the guarantor for first-home buyers who take out loans with deposits as low as 5%.

“We could see another rise in the number of first home buyers in the next couple of months, despite the market downturn.” Tindall said.

Meanwhile, investors continue to retreat as the value of new lending falls. The total value of new lending slipped by another 3.4% month-on-month to $27.39 billion.

“Property investors continue their retreat with the value of investor loans dropping by 4.8% month-on-month in August,” Tindall said. “This data indicates many investors still have their plans on ice, while they see exactly how high rates will go and whether prices will fall further.”

ABS data also revealed that just 4% of borrowers took out a fixed rate in August.

“Borrowers have continued to turn their back on fixing, with the proportion of fixed loans funded in August dropping to just 4% – light-years below COVID levels,” Tindall said. “At the peak in July 2021, when borrowers could lock in rates under 2%, 46% of all new loans were fixed.”

These figures include new loans and refinancers.

Along with the decline in property prices, the average new loan size has dropped month-on-month in seven states in August.

Source: ABS lending indicators, Aug 2022, original data for owner-occupier dwellings. Includes construction and the purchase of new and existing dwellings.