The refinancing tsunami is set to continue, with more than two-thirds of Australian mortgage holders planning to refinance or seek a rate review in the next year, according to a financial comparison website.
The inaugural InfoChoice Real Mortgage Survey, which polled more than 1,000 Australian home loan borrowers about their finances and borrowing intentions, also found that millennial and Gen Z homeowners were leading the refinancing charge, with 78% of the 27- to 42-year-olds planning to refinance or seek a rate review, compared to 69% of borrowers overall.
“With thousands of pandemic-era fixed-rate mortgages yet to experience the dreaded rollover to the brutal reality of today’s interest rates, there’s a lot more to come from this wave of refinancing,” said Dominic Beattie, InfoChoice money analyst.
“It is not surprising that millennials and Gen Z are leading the push to refinance because they have the largest average loans of any generation, so they stand to gain the most by refinancing. They are also the first generation to fully understand the ‘loyalty tax’ and the importance of regularly reviewing all your key service providers to ensure you are getting good value.”
Most severely affected by the rate hikes were the younger generations, with 54% of millennial homeowners owing more than $400,000 on their mortgage, compared to 48% of Gen Z, 29% of Gen X, and 37.5% of Baby Boomers, the survey found.
The July to December 2023 period represented the peak in this fixed-rate expiry tsunami, with an average of 86,553 fixed-rate home loans expiring every month, according to InfoChoice modelling.
“By default, expiring fixed rates tend to revert to very uncompetitive standard variable rates, so mortgage holders going through this process typically refinance to better deals,” Beattie said.
The4 Reserve Bank of Australia has lifted the cash rate 12 times since May 2022, bringing it to 4.1% – four percentage points higher than it was in April 2022.
Findings also showed that it was the younger mortgage holders who were more likely to have protected themselves in the short term by fixing their home loan rate. Currently on a fixed rate were 44% of Gen Z, 25% of Millennials, 21% of Gen X, and 21% of Baby Boomers.
Millennials were also the most likely to have refinanced, with 41% successfully refinancing or getting a rate review in the past year. In comparison, a similar proportion of other generations had tried to refinance but fewer were successful.
Those people who did not refinance said it was because it was too much work (21%), they lacked confidence (12%), or that they were trapped in a mortgage prison (8%).
As mortgage repayments take a bigger bite out of household budgets, refinancing will be a priority for many, though some have been prevented from doing so, Beattie said.
“The mortgage prisoner effect has curtailed refinancing activity to some extent, but a few lenders have recently unlocked the cell doors of some prisoners by unshackling them from strict credit assessments such as the 3% serviceability buffer,” he said.
Among those who had tried to refinance, nearly one in five had been unsuccessful, the survey found.
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