Refinance activity breaks records, new mortgage lending rises

The value of home loan commitments rose 4.9 per cent to just under $24 billion in March 2023, the first monthly rise since January 2022, according to new data from the Australian Bureau of Statistics (ABS).

Despite the cash rate having risen by 25 bps between February and March 2023 (taking the cash rate to 3.6 per cent), activity in the lending market seemed to be ticking back up again after a fall of 1.0 per cent in February. 

The ABS’ Lending Indicators data for March 2023 showed that owner-occupier lending was up 5.5 per cent to just under $16 billion, while investor lending was up 3.7 per cent in the month, to just under $8 billion. (There is no seasonally adjusted or trend data available for the number of owner-occupiers or investors for total housing as the data was collected from July 2019.)

The state with the largest value in owner-occupied borrowings was NSW (which saw values rise 2 per cent to just under $5 billion), followed by Victoria ($4.4 billion), Queensland ($3.1 billion), and Western Australia ($1.6 billion). The remaining states and territories also saw values in owner-occupied loans increase, but values were below $1 billion. 

The figures come as the value of housing starts to recover and amid strong refinance demand. However, the average loan size has fallen, particularly in NSW (down from $727,000 to $711,000 in March) and in Victoria (down from $618,000 to $591,000 in March).

Across the nation, average loan sizes for owner-occupier dwellings fell from $586,000 to $577,000. While this was down on recent months, it is still 20.2 per cent higher compared to the pre-pandemic average seen in February 2020.

Despite the rise in overall value in lending, Mish Tan, ABS head of finance statistics, commented that the new lending figures were still well below the figures seen during the property boom of 2022: “The value of new owner-occupier loan commitments in March remained 25 per cent lower compared to the same time last year, while new investor loan commitments were 29 per cent lower.”

When it came to investor lending, NSW led the way for the largest value in new investor loans (on a seasonally adjusted basis), which rose 0.4 per cent to $3.1 billion, followed by Victoria (up 3.7 per cent to $1.9 billion) and Queensland (up 7.7 per cent to $1.5 billion).

Western Australia saw 3.5 per cent more investor loans written in March ($640 million) and the ACT (a smaller and typically more volatile series) saw investor lending rise 19 per cent to $190 million.

However, investor lending fell in South Australia (down 3.8 per cent to $390 million) while Tasmania (also smaller and typically more volatile series) fell 10.9 per cent to $830,000.

Refinance records continue to be smashed

The month of March also saw refinance activity hit a new record high. Continuing the trend of record-breaking refinance activity increases (which began in earnest in May 2022, after the central bank began raising interest rates for the first time in over a decade), the value of loans being refinanced between lenders rose 6.5 per cent to a new high of $21.2 billion in March.

In seasonally adjusted terms, the value of external refinancing was 28.5 per cent higher compared to a year ago.

Refinances for owner-occupier housing rose 3.9 per cent to $14.2 billion (29.1 per cent higher compared to a year ago) while investor refinances rose 12.3 per cent to $7.0 billion (27.3 per cent higher compared to March 2022).

The ABS noted that borrowers continued to switch lenders for lower interest rates as the RBA’s cash rate rose.

Source: Australian Bureau of Statistics, Lending Indicators, March 2023

FHBs make a comeback

Despite home loan rates rising, a larger number of first home buyers (FHBs) took out a mortgage to enter the property market in March.

According to the Lending Indicators data, a total of 8,128 owner-occupier first home buyers (FHBs) took out loans in March 2023.

Every state and territory except the ACT saw increased FHB loan activity in March, with the greatest demand coming from Victoria. More than a quarter (28 per cent) of all new FHB loan commitments came from Victoria.

The second-busiest mortgage market for new FHBs in March was NSW (1,926 FHBs), followed by Queensland, Western Australia, South Australia, the ACT, and Tasmania. The Northern Territory had the lowest number of FHBs in market — at 71 — but reached a six-month high.

However, Dr Tan noted that despite the monthly rise in owner-occupier FHB lending, the number of these commitments was 21.8 per cent lower compared to a year ago and 50.5 per cent lower than the January 2021 high.

“During the second half of 2020, first home buyer lending reflected the strength in demand for housing during the pandemic, with new commitments peaking in January 2021 and declining by half since then,” Dr Tan said.

Indeed, FHB lending activity reached a five-year low in February 2023, when it fell 4.2 per cent to 7,021 FHB mortgages.

Elsewhere, the value of total new loan commitments for fixed-term personal finance fell 3.1 per cent and lending for the purchase of road vehicles rose slightly by 0.7 per cent.

Housing market is stabilising

Noting the figures, Matthew Hassan, senior economist at Westpac, said the “stronger than expected lift in housing finance approvals has dispelled any lingering doubts that Australia’s housing markets are stabilising”.

Mr Hassan said the lending figures were “well ahead” of the bank’s forecasts; with the March figures showing growth of 4.9 per cent in housing finance approvals, compared to “consensus expectations of a 0.3 per cent dip”. 

“The mix also surprised, owner-occupier loans leading gains, first home buyers (FHBs) showing particularly big gains and construction-related loans firming rather than declining. Investor loans posted a solid but milder gain,” he said.

“Overall, new finance approvals add to the evidence of a clear stabilisation in housing markets, the latest gain consistent with a clear lift in the total value of sales over the last three months — coming off both firmer prices and turnover volumes (see here for more). We expect this broad stabilisation to continue through 2023. 

“That said, it should be noted that activity is coming from a very low starting point. While the level of lending remains at or above pre-COVID-19 highs, both in number and dollar value terms, it is near historical lows when viewed relative to the total dwelling stock or the total value of loans outstanding respectively. The same is true for the number and value of construction-related owner-occupier loans.”

Similarly, PropTrack’s economist Angus Moore commented even with the first in new lending since early 2022, the figures were still a lot lower than last year.

“While that’s a substantial pullback, it really reflects just how strong lending activity was in late 2021 and early 2022,” Mr Moore said.

“The value of new loan commitments is still pretty robust and is substantially stronger than we were seeing in 2019 or early 2020, in part because of the strong growth in house prices we’ve seen. 

“External refinancing activity remains very strong and is showing no signs of slowing down. It hit another new peak in March, with around 28,000 owner-occupiers refinancing in March alone — that’s twice as many as we’ve typically seen on average over the past two decades.”

[Related: Major banks snatch loan book market share, AFG reports]