Drop in refinancing likely to be short-lived

According to the latest Lending Indicators data for April released by the Australian Bureau of Statistics (ABS), the value of new owner-occupier housing loan refinances between lenders fell 8.6 per cent.

In seasonally adjusted terms, the value of external refinancing for total housing fell 9.2 per cent to $19.3 billion, following the record $21.3 billion in March, sitting 14.2 per cent higher compared to a year ago.

Despite the fall, owner-occupier refinancing activity still remained high at $13 billion (but down from its record high of $14.2 billion during March) as borrowers continue to switch lenders in search of better rates as a result of the climbing interest rates over the last year.

However, as we’ve reached June, the dreaded fixed-rate mortgage cliff has arrived, with borrowers reverting to rates that are more than double what they were paying previously, and the decline in refinancing activity could be fleeting.

According to CoreLogic research director Tim Lawless, due to the number of fixed-rate loans due to expire, it’s likely the drop in value of external refinance activity in April “is a blip”.

“The value of external refinancing also tracked lower through the month, down 9.9 per cent, albeit from record highs in March,” Mr Lawless added.

“We are expecting to see refinancing lift further through the year as the ‘bulge’ in fixed-rate lending from 2020/21 reaches term.”

On the refinancing data, PropTrack economist Angus Moore commented: “The big story at the moment continues to be refinancing, which remains extremely strong.

“While April saw slightly less external refinancing activity than we’ve seen in recent months, activity is still very strong, and both investor and owner-occupier external refinancing activity is growing at double-digit growth rates over the year.”

Furthermore, according to the Commonwealth Bank of Australia’s (CBA) latest Economist Insights report, the major bank suggested that although refinancing activity is still occurring in high numbers, it “may have peaked”.

New loan commitments values fall

Further findings from the ABS indicated that the value of new loan commitments for housing fell 2.9 per cent to $23.3 billion in April 2023, after an increase of 5.3 per cent was observed in the previous month. The figure was 25.8 per cent lower compared to a year ago.

Meanwhile, owner-occupier housing values fell 3.8 per cent to $15.4 billion, 24.3 per cent lower than in 2022, and investor housing fell 0.9 per cent to $7.9 billion and was 28.6 per cent lower compared to last year.

In addition, the number of loan commitments taken out for construction of a new dwelling hit new lows once again, down 4.2 per cent to 2,546, falling from the record low 2,661 figure the previous month.

However, the fall in volumes may have been impacted by the number of public holidays throughout the month of April.

Housing Industry Association (HIA) senior economist Tom Devitt said: “The number of loans issued for the purchase or construction of a new home has fallen to a new low.

“The last time so few loans were issued for the purchase or construction of a new home was in September 2008, when the GFC caused a contraction in building.

“Lending for the purchase and construction of new homes in the three months to April 2023 was 31.5 per cent lower than at the same time last year.”

He added that the full impacts of the Reserve Bank of Australia’s (RBA) rate hikes are yet “to fully hit the housing market, let [alone] the broader economy”.

“These low lending numbers reflect a lack of new work entering the pipeline at the same time that population growth is surging,” Mr Devitt concluded.

“There needs to be a structural increase in the number of homes being built across Australia, a fact recently acknowledged by the RBA.”

[RELATED: Construction loan demand falls to new low]