Refinancing reaches record high: ABS

The Australian Bureau of Statistics has released its Lending Indicators data for July 2021, which revealed that borrower refinancing of housing loan commitments between lenders rose by 6.0 per cent in July 2021 (compared to June 2021, seasonally adjusted) to $17.2 billion.

This was driven by a 4.9 per cent rise for owner-occupier housing to $11.4 billion and an 8.3 per cent rise in investor housing to $5.9 billion in July (in seasonally adjusted terms).

The $17 billion figure marks the largest external refinancing value on record.

ABS head of finance and wealth, Katherine Keenan noted that the value of refinancing between lenders was also 60.0 per cent higher in July compared to a year ago (when external refinances totalled around $10 billion). 

She said: “This reflected borrowers seeking out lower interest rates, particularly for fixed rate loans, and cashback deals across a large number of major and non-major lenders.”

Andrew Walker, CEO and co-founder of digital lender Nano Home Loans commented that lockdowns have allowed borrowers additional time to reassess their home loan situation and identify refinancing opportunities, especially amid the current uncertainty.

However, he warned: "Consumers need to be wary of pricing gimmicks such as cashback offers and honeymoon rates available in market as they hide the true cost of the loan for a consumer. To truly take advantage of the low interest rates in market, consumers need to look for comparison rates that match the advertised rate as that means there are no hidden fees."

Non-bank lender Techlend CEO, Aaron Bassin said that the record refinancing levels indicated that borrowers are becoming more savvy with their loans.

He said: "What we are seeing is rapidly rising prices and more activity in property buying and selling in comparison to the same period as last year driving this up-swell in loan refinancing.

"It’s no surprise given the turbulent year that borrowers are eager to capitalise on cheaper and more suitable home loans."

On the other hand, recent research commissioned by major brokerage Aussie revealed a “refinancing reluctance”, and found that 60.0 per cent of borrowers have not reviewed their home loan in the last 12 months or since securing their loan, while only 20.0 per cent have refinanced during that time.

Owner-occupied loans decline

Investor loan commitments have gone through an unbroken period of growth since October 2020, and almost doubled in value compared to a year ago when it was at $4.7 billion, according to the ABS.

Across the states and territories, NSW recorded the strongest increase in the value of owner-occupier loan commitments excluding refinancing of 6.6 per cent to almost $8.0 billion.

Lenders reported that a large proportion of these commitments was from loan applications made earlier in May and June.

New loan commitments rose by 0.4 per cent in Victoria to $6.7 billion and 13.2 per cent in the Northern Territory to $127.0 million.

However, commitments fell in Queensland by 6.3 per cent ($3.9 billion), in South Australia by 8.2 per cent ($1.1 billion), in the ACT by 5.4 per cent ($564.0 million), in Tasmania by 7.3 per cent ($281.0 million), and in Western Australia by 0.7 per cent ($2.1 billion).

Increases in the value of new loan commitments for investor housing were strongest in NSW (up 6.1 per cent to $3.9 billion), and Queensland (up 9.1 per cent to $1.6 billion), which the ABS said were both largely driven by lending for existing dwellings.

Commitments rose in the ACT by 6.0 per cent ($251.0 million), in the NT by 27.2 per cent ($30.0 million), and in Western Australia by 0.5 per cent ($495 million).

However, they fell in Victoria by 3.0 per cent ($2.5 billion), in Tasmania by 6.4 per cent ($115 million), and in South Australia by 1.0 per cent ($389.0 million).

FHB commitments wane post-HomeBuilder 

The number of new loan commitments to owner-occupier first home buyers (FHB) fell by 6.8 per cent in July, after declining by 7.8 per cent in June.

Commitments have reduced by 20.0 per cent since January 2021 but have remained 20.0 per cent higher compared to a year ago.

Ms Keenan said: “While these falls were still tied to the unwinding of strength in construction lending post-HomeBuilder, the decline in first home buyer loan commitments now appears more widespread.”

Owner-occupied construction lending has continued to unwind from the February 2021 record high when the HomeBuilder grant was available, with the value falling from $4.2 billion to $2.5 billion since the February peak.

It fell by 4.7 per cent in July, marking the fifth consecutive month of declines.

HIA economists Angela Lillicrap commented that the data has reflected the progression of HomeBuilder projects “as the majority have now finished the approvals process and will be commencing construction in the coming months”.

The value of new commitments for fixed-term personal finance rose by 14.2 per cent in July 2021 (seasonally adjusted), driven by a 93.0 per cent rise in lending for personal investment (typically for buying shares and other investment assets). Lending for the purchase of road vehicles rose by 2.9 per cent.

[Related: Investors drive loan commitments to new high: ABS]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.