According to figures released by the Australian Bureau of Statistics (ABS) the total value of home loans refinancing has exceeded a record high since May 2020.
With the COVID-19 pandemic escalating more Australians have refinanced their home loans than ever before.
As Australian home lending and property market values drop, there’s no shortage of owners’ negotiating their existing loans down, which is also increasing pressure on lenders to cut a more competitive deal.
ABS data reveals 33,712 borrowers refinanced in May, up 30% from April 2020 and the total value of these refinanced homes exceeded $15.1 billion in May which is up 26% from the previous high of $12 billion in April.
The ABS Chief Economist Bruce Hockman said, “while reduced transactions in the housing market stifled new loan activity in May, the value of existing owner-occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers”.
Graham Cooke the Insights Manager at Finder said that as budgets are being stretched, a record number of people are deciding to get a more competitive deal on their largest investment.
“Historically low interest rates and a lack of investor spending are a double whammy to banks, but a boon for mortgage holders,” Cooke said.
On the average loan of $494,462, Finder analysis shows the average standard variable rate from the Big Four banks is 4.04%.
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If that rate were to drop 50 basis points to 3.54% over the length of the loan an estimation of $36,287 would be saved.
In such a tight economic environment, lenders could be forced to cut their lending margins even lower as they work to secure low risk borrowers.
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The number of refinanced loans escalated from 25,988 to nearly 33,712 from the period of April to May.
This number consists of record highs for both external refinance loans, which involve customers switching lenders, and internal refinance loans, which involves customers getting a more competitive rate from their current lender.
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According to the ABS figures, external loans reached 21,473 and internal loans reached 12,239.
Despite new records for both internal and external refinancing sectors, the largest disparity is 64% of all refinance loans are Australians switching lenders.
At its July meeting, the Reserve Bank of Australia concluded that the official cash rate will stay at a low 0.25% some of the lower home loans are starting at 2%.
Some lenders are now offering new schemes and are offering to waive fees for new borrowers, and some are offering extras like offset accounts at no additional cost.
Compare your interest rate today.
New home loans
New home loan commitments fell by 11.6% in May – the steepest decline on record.
The value of new home loan commitments for owner-occupiers fell 10.2% and new loans for investors fell 15.6% – the lowest level since 2002.
ABS Chief Economist, Bruce Hockman, said in a media release, “this was the largest fall in the history of the series, driven by strong falls in the value of loan commitments for housing in New South Wales and Victoria.
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First home buyers
The latest ABS data for April shows demand from first home buyers was around 20% higher than the most recent low point in December 2018, as property price falls in many markets over late 2018 and early 2019 encouraged them into the property market.
Even though the Morrison government have been trying to appeal to first home buyers to keep the economy afloat, there has also been a drop in new home loan mortgages.
The HomeBuilder scheme has been implemented to attract first home buyers as they represent a significant opportunity to accelerate their home ownership goals.
However, the number of owner-occupier home loan commitments decreased by 9.3% in seasonally adjusted terms.
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Words by Ece Demir
- ABS- Lending Indicators, May 2020
- Aussies switching lenders at record rate
- Mortgage refinancing surges as interest rates dive, but can you get a home loan during coronavirus?
- Record high: $15 billion in home loans refinanced in May
- Record number of Aussies refinance as new home lending plummets
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