Interest rate rises drive refinancing boom

The volume of mortgage refinancing has increased 0.4% this week, as borrowers try to find a better deal following consecutive interest rate increases.

The Reserve Bank’s decision on December 6 to lift the official cash rate 0.25% to 3.10% was the eighth straight month it had lifted the OCR, putting further pressure on variable rate mortgage holders.

PEXA’s latest Refinance Index for the week ending December 6, shows elevated levels of mortgage refinancing activity, up 0.4% from the previous week (seasonally adjusted) and up 8.1% from the same week year-on-year. The level is now close to the recent peak of 179.5 points in September 2022.

PEXA chief economist Julie Toth (pictured above left) said the latest RBA decision to lift the OCR meant the rate was at its highest level since 2012.

“This is the largest and fastest rate rise ever implemented by the RBA,” Toth said.

“The relatively direct transmission of interest rate rises to mortgagees will continue to take ever larger chunks of disposable income away from mortgage-bearing households into 2023. Looking ahead, the RBA continues to flag the possibility of further rate rises in the new year to tame excessive domestic demand in our resource-constrained economy.”

Toth said PEXA’s research indicated that the rising OCR was driving record numbers of borrowers to refinance their loans.

“Our research confirms a strong appetite for Australians to shop around for the best loans possible, which is warranted given that consumers can save by seeking out new financing options, in addition to cashbacks and other incentives being offered to refinancers by major home loan providers,” she said.

Toth said for renters aspiring to become homeowners local house prices were falling, but the maximum loan size they could access was becoming progressively smaller as rates increased.

“We are now seeing fewer people moving from renters to first homeowners at lower average price points, which places further pressure on rental markets at a time when rental availability and affordability are at record lows in many locations.”

GA Finance Solutions Australia mortgage broker Grant Arbuckle (pictured above right) said he had noticed a shift in market sentiment with a greater number of clients refinancing and many more homeowners more aware of the OCR movements and increases in mortgage repayments than in months or years prior.

“As a brokerage, we have personally reached out to all of our clients to ensure they are in tune with their current home loan structure and interest rate and where necessary, applying on our client’s behalf for interest rate discounts with their existing lender,” Arbuckle said.

“However, there has been an increase in new customers coming to us seeking advice on possible refinances along with existing clients seeking support outside of their existing lender when pricing with their existing lender has not been as competitive as other lenders in market.”

Arbuckle said as a broker, it was not just about his best interests duty obligation when an existing client reached out for support, but it was the right thing to do.

“In tough times, it’s our values that really shine through. Knowing the increase in existing customers reaching back out, we brought on a new team member in October in an ‘account manager’ position to ensure that we have someone in our team ready to support our existing clients as they need,” he said.

“Aside from refinances, the increase in communication and questions regarding a client’s home loan has increased sharply – we do not see this as a negative as it forms the basis for how we manage our business with our clients – that is, education is key and our clients are aware of their loan structure.”

Arbuckle said he and his team had found most lenders to be far more open for business in recent months when it came to potentially switching lenders for refinancing a client.

“We are finding lenders’ assessment times frames are better, BDM support is stronger and we are working with a greater range of lenders than we may have previously. Interest rates are far more competitive at many lenders, which always dictate a client’s selection, especially in a market where the main reason to refinance is interest-rate driven.”

Arbuckle said the refinance trend would continue into 2023.

“We are expecting to see an increase in debt consolidated related finances in early-mid 2023 as families tend to spend more during the Christmas period and this year will be no different,” he said.

“With house prices still high and many holding equity in their property, we expect there will be increased support required to reduce monthly expenditure via a debt consolidation refinance. We are also expecting further rate rises early in 2023, which will no doubt continue to the trend of individuals and families being savvier when it comes to their home loans.”

From AustralianBroker

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