Refinancing plummets, despite cash rate hold

Stagnant rates and lender restrictions contribute to major fall in refinancing since 2016

Refinancing plummets, despite cash rate hold
Stagnant rates and lender restrictions contribute to major fall in refinancing since 2016

The number of homeowners who are refinancing has fallen significantly, figures from the Australian Bureau of Statistics show. 

16,339 mortgages were refinanced in July 2017, compared to 19,615 a year earlier. Another study by comparison site finder.com.au found that the proportion of homeowners refinancing is at its lowest level since July 2010. 30% of loans were refinanced in July, compared to a record high of 37% in July 2016.

“The number of customers refinancing surged from February to September 2016,” commented Finder.com.au’s insights manager Graham Cooke. "Mortgage holders switched in record numbers to take advantage of cheaper home loan costs, as it was perceived rates wouldn’t get any lower. And it was a gamble which paid off.”

2016: the golden age of refinancing

Yesterday’s decision by the RBA to leave the cash rate at 1.5% was the 14th consecutive month it has been left untouched.

Although the cash rate has not risen since July 2016 the interest rates paid by many borrowers have increased, in particular for property investors. According to CANSTAR data, the average investor SVR stands at 5.13%, up on the month previous; the equivalent owner-occupier SVR is 4.67%.

The discounts offered by the major banks in 2016 were “unprecedented”, JP Morgan argued last October, warning that “major banks are their own worst enemy when they pull the price lever”, with discounts leading to reduced profit margins. 

With the Federal Government’s bank levy announced this year, in addition to South Australia’s bank levy, it seems unlikely that banks would want to threaten margins through a repeat of 2016’s campaigns.

Confusion and complexity

With rates on hold for so long, borrowers may be unprepared for when they do eventually rise, 1300HomeLoan managing director John Kolenda has warned: “It has been almost seven years since consumers have dealt with a rate rise from the RBA and any future increases will have a greater impact on household income and consumer sentiment than it has in the past.” 

Both Kolenda and Mortgage Choice CEO John Flavell have claimed that the increased complexity of the mortgage market will cause borrowers to go to brokers, even though official rates remain low. 

With increased restrictions on interest-only loans and postcode-LVR restrictions by major banks in recent weeks, coupled with discounts for the Spring buying season, the lending landscape shows no signs of getting simpler. 
 

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