Rising interest rates lead to a surge in refinancing

Homeowners are refinancing their mortgages at record levels as the impact of rising interest rates start to take hold.

The latest data from the Australian Bureau of Statistics shows that $18.88 billion worth of home loans were refinanced in August, an increase of 5.3 per cent compared to a month earlier. Research Director Sally Tindall said refinancing had hit a record level as the Reserve Bank of Australia continued to hike interest rates.

“We expect the refinancing boom will continue for a number of months as borrowers look for a way to combat rising rates,” Ms Tindall said.

“An increasing number of borrowers will also start rolling off their ultra-low fixed rates over the course of the next year, many of which will consider refinancing at this time.”

Ms Tindall said one worry for refinancers was that with higher interest rates, some borrowers might not qualify for a new home loan based on their current income levels.

“The concern is many borrowers may find it difficult to refinance as a result of rising rates and falling property prices, rendering them in mortgage prison,” she said.

“Some borrowers could find themselves in mortgage prison because they don’t pass the bank’s serviceability test or they don’t have enough equity in their loan.”

According to the ABS, first-home buyers have also made a comeback, with the number of loans settled increasing 10.4 per cent in August compared to the prior month.

Although the number is still down compared to last year, with 26 per cent fewer first-home buyers entering the market than in August 2021.

Ms Tindall said with property prices dropping as rates rise, first home buyers were finally getting a look-in.

“It’s possible many first-home borrowers were patiently waiting for the latest round of places to open up in the Federal Government’s scheme to help first-home buyers with small deposits,” she said.

An extra 35,000 spots opened up for first-home buyers in the First Home Guarantee in July, which is where the government acts as the guarantor for first-home buyers who take out loans with deposits as low as 5 per cent.

“We could see another rise in the number of first-home buyers in the next couple of months, despite the market downturn.” Ms Tindall said.

Meanwhile, the total value of new lending dropped a further 3.4 per cent month-on-month to $27.39 billion.

Ms Tindall said investor numbers were slowing down as rate hikes continue to bite.

“Property investors continue their retreat with the value of investor loans dropping by 4.8 per cent month-on-month in August,” she said.

“This data indicates many investors still have their plans on ice, while they see exactly how high rates will go and whether prices will fall further.”

Ms Tindall said borrowers were reluctant to fix their interest rate in the current environment.

“Borrowers have continued to turn their back on fixing, with the proportion of fixed loans funded in August dropping to just 4 per cent – light-years below Covid levels,” she said.

“At the peak in July 2021, when borrowers could lock in rates under 2 per cent, 46 per cent of all new loans were fixed.”

Show More

News Room

If you have any news for the Real Estate industry - whether you are a professional or a supplier to the industry, please email us:

Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.