Fixed rate refi boom leaves retention in shadows

A “mini US-style refinance boom” is stirring the Australian mortgage market as lenders race to the bottom for fixed rates and retention takes a back seat.

As Australian lenders focus their efforts on maintaining a competitive offering in a market of historically low fixed rate mortgages, retention is not at the top of the agenda, according to industry stalwart Kym Dalton.

Speaking to Mortgage Business, Mr Dalton compared the current lending environment to the refinance boom in the US earlier in the year.

“I have spent a fair bit of time in North America and a feature of the market there was obviously the refinance boom when interest rates dropped,” he said.

“Right now in Australia, with this mini US-style refinance boom, retention is just not at the top of the agenda at the moment.”

Last week CBA announced the lowest five-year fixed rate in its history at 4.99 per cent.

The rate was quickly matched by NAB and Westpac, with a host of smaller lenders following suit this week.

Low interest rates globally have fuelled the demand for cheap funding among Australian lenders, which is now being passed on to borrowers.

“Australia is now a yield economy, and Australian banks are able to borrow very efficaciously offshore,” Mr Dalton said, adding that he expects rates to drop even further before stopping suddenly as they did in the US.

“It will be a race to the bottom,” he said.

“In the US, as rates plummeted brokers and bankers never had it so good because everyone refinanced down to historically low rates.

“That stopped dead in March and now everyone is in the doldrums because rates are about to tick up.

“There is no activity in the US at all at the moment.”

AMP Capital chief economist Shane Oliver said he wouldn’t be surprised to see five-year rates fall below 4.90 per cent.

“The five-year swap rate, which is like a five-year wholesale borrowing rate, has been at about 3.20 per cent, so conceivably rates could still go a little bit lower,” he said.

ME Bank this week undercut the majors by dropping its five-year rate to 4.94 per cent.

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