Brokers discuss current activity levels, repricing trends
Demand for residential lending and refinancing remain strong, while the removal of cash back offers is levelling the playing field across lenders, brokers say.
Their comments follow the release of the AFG Mortgage Index for Q4, which showed its broker network lodged $22 billion in residential mortgage finance for the final quarter of the 2023 financial year, a rise of 15.6% from $19 billion the previous quarter and slightly below the same time last year.
According to AFG data, there were 37,270 mortgages lodged over the quarter, with an average loan size of $602,028. The biggest portion (37%) were upgraders, followed by refinances (33%), investors (29%) and first home buyers (11%). Over three quarters (82%) were principal and interest (P&I) loans, with 18% on interest-only.
Commenting on the data upon its release, AFG CEO David Bailey said that the demand from borrowers to take out finance to upgrade their property (37%) was the lowest level since the third quarter of 2017. AFG data showed a rise in the proportion of home loans with fixed rates for a third consecutive quarter, although the figures remained below long-term averages of 8% of total home loans, he said.
Refinances were at the highest level since the third quarter of 2017, Bailey said. Major bank market share was down from 61.8% to 60.4%, he said, noting that market share over 60% meant the dominance of the majors was back to 2017 levels.
Upgraders still present but serviceability an issue
Nathan Smith (pictured above left), director and broker at Birdie Wealth, said that enquiry levels from existing homeowners wanting to upgrade remained strong, but acknowledged that due to higher interest rates, serviceability was an issue for many borrowers.
“They’re coming in with the idea to upgrade (whether it be from a unit to a house, or a slightly larger home), but the capacity they thought they had isn’t there,” Smith said.
Fabio De Castro (pictured above right), mortgage broker at Oxygen Home Loans, said that within his business, demand from clients wanting to upgrade remained consistent.
In relation to demand from homeowners wanting to renovate, De Castro said Oxygen Home Loans had recently held conversations with a few clients considering releasing equity, whose plans had been put on hold.
He noted that rising building costs were still an issue and there were often long lead times before builders could start new projects. Builders put clauses in place to accommodate a rise in the price of materials, meaning the total cost is often uncertain. The possibility of further interest rates is another consideration.
“People are sitting on the sidelines and seeing where rising building costs are going to end and if there is any relief towards the end of the year or early next year in terms of materials, and more certainty around the quotes they’re being given,” De Castro said.
Demand for fixed rate loans tapering off
In response to whether the possibility of further interest rate hikes was causing borrowers to seek certainty from fixed mortgage interest rates, Smith said that demand was limited to those near the top of their servicing capacity, such as young families that had reduced to one income.
These borrowers weren’t necessarily in mortgage stress but due to concerns about any future rate rises, opted to lock in a rate for one or two years, he said.
De Castro said that over recent months, he had seen a slight increase in the number of borrowers wanting to lock in a fixed rate. There was a period where a couple of lenders were sharp on pricing for one and two-year fixed rates, however that window has now passed, he said.
“The gap between the variable and the fixed is now quite large,” De Castro said.
With the official cash rate remaining on hold in July and August, De Castro said that more borrowers were comfortable with variable rates and were willing to accommodate a further rate hike if needed.
Refinance trajectory continues
According to current ABS lending figures, refinancers were $20.2 billion in June, marking a 3.1% drop month-on-month, but a 12.6% increase year-on-year.
Smith said that Birdie Wealth repriced clients every six months, and that many clients approach the business within this period for additional pricing. Clients are increasingly looking for advice on how to structure their loan and whether it is worth their while to change lenders, he said.
“The majority of our lending at the moment is refinancing of our existing clients, but it’s [also] bringing its own level of enquiry where friends and family come in to speak to us, to look at refinancing and checking their rates as well,” Smith said.
As Oxygen Home Loans works with accountants, planners and buyer’s agents, De Castro said that new business remained strong, including mortgages for investment properties and SMSF lending.
In line recent official cash rate pauses, refinances have slowed slightly, but De Castro said that demand from clients to renegotiate interest rates remained strong.
“The 33% increase in AFG refinancer figures is in line with what I’m seeing but it is slowing down now that the majority of cashbacks are gone,” De Castro said.
Banks less competitive than six months ago, but service improving
When reviewing the loans of existing residential mortgage clients, brokers reported a slight variance in banks’ willingness to negotiate rates.
When repricing clients in May, Smith said that his observations were that banks weren’t as competitive as when repricing was done in November. Late last year, Birdie Wealth was able to save clients over $1 million per annum in interest savings across its loan book. More recently, savings in client repricing were around $300,000, he said.
“The banks have been nowhere near as competitive, essentially telling a lot of clients that their rate is where it’s at (there’s no further discounts available),” Smith said. “That’s causing us to have to move lenders because of the difference in rates.”
De Castro said that bank retention services were improving, noting that banks’ appetite to address the interest rates applied to current mortgage customers had increased.
Removal of cashbacks levels playing field been majors and non-majors
Recent moves by CBA, NAB and Westpac to remove cashback offers has meant that clients are more willing to explore a variety of lenders, De Castro said.
“I think that does level the playing field to the smaller players … that’s want we want as brokers is to keep competition level,” De Castro said.
Smith said that while there were a range of factors that determined where business was placed, some refinancing was driven by serviceability, including differences in serviceability rates, he said.
“Whether it’s around a 1% buffer or a 3% buffer can often determine what options a client is eligible for,” Smith said.
Despite interest rate rises and a higher cost of living, there is still plenty of opportunity out there for brokers, he said.
“Setting yourself up as being that key adviser for clients when times are tough, having them lean on you for advice and valuing that relationship, they’re referring people across,” Smith said.
