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Refinancing hits a record high as borrowers try to combat rising rates

Refinancing rates have hit record heights as increasing numbers of borrowers look for cheaper interest rates, while the volume of new loans has continued to decline.

According to the Australian Bureau of Statistics (ABS), $19.87 billion worth of mortgages were refinanced in February, in seasonally adjusted terms – the highest monthly amount in Australian history.

However, the value of new loans for housing fell 0.9 per cent to $22.6 billion in February 2023, on the back of a 2.4 per cent decline in January, marking the thirteenth straight month of falls.

The number of first-home buyer loans also dropped again in February, down 3.45 per cent and down 29.9 per cent on a year ago.

Real Estate Institute of Australia (REIA) President, Hayden Groves said the lending statistics confirmed a slowdown across owner-occupiers, investors and Australians looking to buy their first home.

“Housing finance has been in steady decline from the record highs in January 2022, with the total value of new loan commitments falling 33 per cent since then,” Mr Groves said.

Mr Groves said first-home buyers remained hesitant with the rate of first-home ownership slowing.

“Fears around future rate hikes, cost of living pressures, affordability constraints and inflated construction costs are major contributing factors to the slow-down in first home buyer activity,” he said.

RateCity.com.au Research Director, Sally Tindall, said borrowers had come out swinging against rising rates as evidenced by the spike in refinancing.

“Soaring mortgage rates have hit family budgets hard, however, many are using the competition in the market to neutralise some of the rate pain,” Ms Tindall said. 

“While CBA, NAB and ANZ have all increased variable rates for new customers in the past month, the market is still incredibly competitive for borrowers looking to switch, particularly if they’re willing to go beyond these big banks.”

Building approvals bounce back

Demand for new homes bounced back in February, with a 4 per cent rise in building approvals.

The increase in building approvals comes on the back of a 27.1 per cent fall in January.

ABS Head of Construction Statistics, Daniel Rossi said the jump in approvals was driven by a 11.3 per cent rise in approvals for private sector houses, after hitting a 10-year low in January

“Total dwelling approvals have continued their downward trend since September 2022, following the conclusion of government stimulus and rising interest rates,” Mr Rossi said.

Mr Rossi said there was currently more demand for detached homes, while approvals for high-density buildings continued to slide.

“Private sector dwellings excluding house approvals fell a further 9.5 per cent in February, following a 40.3 per cent decline in January, and is at its lowest level recorded since July 2012,” he said.

Across Australia, total dwelling approvals increased sharply in Tasmania (122.1 per cent), while South Australia (28.5 per cent), New South Wales (14 per cent) and Victoria (8.5 per cent), also rose.

Queensland (-13.7 per cent) and Western Australia (-6.4 per cent) fell in seasonally adjusted terms.

Approvals for private sector houses rose in all states: Queensland (18.8 per cent), Victoria (10.3 per cent), New South Wales (9.9 per cent), Western Australia (2.4 per cent), and South Australia (1.6 per cent). 

The value of total building approvals rose 19.7 per cent, following a 19.2 per cent fall in January. 

The value of total residential building approvals rose 7.7 per cent, comprised of an 8.4 per cent increase in new residential building and a 3.7 per cent rise in alterations and additions.

HIA’s Chief Economist, Tim Reardon said that despite the small bounce, February still saw the fewest loans issued for the purchase or construction of a new home in almost 15 years.

“The last time so few loans were issued for new homes was in November 2008,” Mr Reardon said.

“While approvals for new houses in February bounced back from their holiday low, they remain 13.6 per cent lower than a year earlier. 

“Approvals for multi-units also fell by 8.4 per cent in February, to be down by 51.9 per cent on a year earlier, with many projects recently being delayed in the face of labour and materials uncertainties.

“Owner occupiers and investors, alike, continue to retreat from the market. Even lending for renovations – the part of the sector expected to hold up relatively well during this downturn – had its weakest month in almost two years.”

Mr Reardon said the large pool of building work that existed when the RBA started to increase the cash rate in May 2022, had been eroded.

“This slowing in home building will undermine the achievement of the Australian government’s target of one million new homes over the next five years and with migration at record levels, affordability will deteriorate further,” he said.

Master Builders Australia Chief Economist Shane Garrett said the volume of new approvals on the higher density side is now at its lowest in over a decade.

“The output of new higher density homes has been depressed since before the pandemic,” Mr Garrett said.

“Inadequate volumes of new supply are contributing to growing difficulties in our rental market.”

He said insufficient home-building output will only magnify the challenges around housing affordability.

Master Builders Australia Chief Executive Officer Denita Wawn said rising interest rates and declining sales for new home construction is weakening the pipeline of new housing.

“A strong building industry is the foundation of a strong economy,” Ms Wawn said.

“The inextricable ties between construction activity and the broader health of the economy are again on display in the current environment.

“To achieve better housing affordability and keep up with demand, changes need to be made to the way we do things, now and over the long term.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.