Refi boom winding down: AFG

According to the aggregator’s Mortgage Index for the final quarter of the 2016/17 financial year, just 29 per cent of loans coming through the Australian Finance Group were for refinances.

The figure is the lowest it has been since 2013, when refinances made up 34 per cent of AFG mortgages lodged, and is a marked comedown from the high of 39 per cent in the last quarter of the prior financial year.

Indeed, it is the first time in the past four years that refinances have dropped below 30 per cent – and represents a 6 per cent drop from the previous quarter.

Perhaps unsurprisingly, given the regulator’s crackdowns in investment lending, the proportion of investment loans has also dropped, with the final quarter of the fiscal year 2016/17 matching the record-low of 31 per cent from the second quarter of 2016.

The aggregator has attributed the drop to a decrease in refinance options for borrowers with interest-only or higher LVR investment loans, as well as an increasing decision by borrowers to “stay put” until the market settles.

Indeed, the percentage of people deciding to fix rates in this changing market jumped significantly in this quarter from 18 per cent to 23.7 per cent (or from 18.6 per cent when compared to the same quarter the year prior).

The aggregator data also suggested that lender policy restrictions have resulted in the average loan size falling in every state apart from Queensland (where the average loan size increased from $404,454 to $408,537).

David Bailey, AFG CEO, said that, in fact, the only part of the market that has been “virtually untouched” by regulators and lenders was the principal and interest owner category, and as a result, those opting to upgrade their homes have increased from 34 per cent to 39 per cent in response to “some attractive lending offers”.

Non-majors increasing in popularity

As well as demonstrating a new record (low) for mortgage refinance applications coming through AFG brokers, the index also reveals that brokers are now sending a record (high) proportion of loans to the non-major banks.

In the fourth quarter of 2016/17, AFG brokers sent 35.2 per cent of loans to non-majors, nearly a whole percentage more than in the previous quarter, and up 6 per cent on the same quarter in 2015/16.

Mr Bailey said that the shift in flows was due to “significant structural change to the lending market brought about by tighter lending”.

“As the majors re-price their mortgages and change lending policies to meet regulatory caps, consumers are turning to mortgage brokers to get a full picture of the choices on offer in such a competitive market,” he said.

“The non-major lenders are helping fill the void left by some of the majors and consumers are benefiting from the fact that a mortgage broker can offer products from those lenders without a branch network.”

Have you been writing more loans through the non-major banks? Why not respond to the Third-Party Lending Report: Non-Major Banks 2017 to tell us your thoughts on the sector? The survey closes on Friday, 28 July.

[Related: Investor lending slowdown continues]