Mortgagors refinancing at ‘rapid speed’: Lendi

The Reserve Bank of Australia (RBA) announced its ninth consecutive cash rate hike by an additional 0.25 bps, bringing the official cash rate to 3.35 per cent. As a result, refinancing activity has hit new highs over the course of 2022 as borrowers scramble to find better offers on their mortgages.

According to the Australian Bureau of Statistics’ latest Lending Indicators data, refinancing held strong during the month of December 2022, hitting its second-highest level on record despite the value of new mortgages decreasing.

Refinancing activity as of December totalled $19.1 billion, falling from the record high of $19.5 billion recorded in November, where refinancing activity jumped 8.2 per cent.

Data released by Lendi Group has shown that Australians are refinancing at a “rapid speed” due to the RBA’s ongoing rate hikes.

According to Lendi’s data, 76 per cent more Australians refinanced than those who took out a new home loan in a trend that has seen refinancing accounting for 88 per cent of Lendi’s mortgage activity over the last three months.

NSW accounted for the largest portion of those who refinanced over the past quarter to December 2022 at 48 per cent, followed by Western Australia at 22 per cent, Queensland at 15 per cent, and Victoria at 12 per cent.

During that same period, the 35–44-year-old age group took out the largest proportion of refinances at 34 per cent, followed by the 45-54-year-old cohort at 25 per cent, and 25-34-year-olds at 18 per cent.

Lendi attributes the refinancing boom to thousands of mortgagors preparing for looming fixed-rate mortgage cliff, which will see fixed-rate terms expiring in 2023. It is expected that $130 billion fixed-rate mortgages will revert to standard variable rates in the next six months.

PEXA’s Refinance Index has revealed that loan refinancing volumes continued to show strong levels of mortgage refinancing activity, following a seasonal lull in early January.

For the week ended 7 February 2023, PEXA’s Refinance Index was 172.5 points, down by 1.3 per cent from the previous week in seasonally adjusted terms (up 25 per cent in original unadjusted terms).

Furthermore, it was up 16 per cent from the same week in 2022 and down 5 per cent from the record high of 182 points at the end of December 2022.

Lendi Group chief executive David Hyman commented: “Typically, 20–25 per cent of loans are fixed, but cheap rates through the pandemic created a rare period in which fixed rate borrowing ballooned, with total housing lending and refinancing on fixed interest rates peaking at 46 per cent  in July 2021.

“By mid-2023, copious fixed rate mortgages secured during the pandemic will have reverted to a standard variable rate and borrowers who took out these loans are likely to be facing much higher mortgage payments.”

Mr Hyman further stated that the higher interest rates go, the more intimidating it becomes for borrowers approaching the mortgage cliff.

“It means a significant portion of homeowners will see all their disposable income swallowed through the RBA rate rises. Pair this with rapidly declining housing prices and shrinking equities and many homeowners are being left facing mortgage prison,” he added.

PEXA chief economist Julie Toth said the RBA’s decision to raise the cash to its highest level since 2012 is the “largest and fastest rate rise ever implemented”.

“The relatively direct transmission of interest rate rises to variable mortgage rates will continue to take ever larger chunks of income away from mortgage-bearing households through 2023,” Ms Toth stated.

“Refinancing and loan renegotiation activity is likely to remain elevated, as mortgagees seek to reduce their mortgage costs.”

Ms Toth added that the RBA estimated that a third of outstanding housing credit is currently mortgaged at a fixed rate and term and that more than 800,000 fixed-rate loans are due to expire during 2023.

[RELATED: February cash rate hike continues mortgage pain]