Image – Canva.
  • The decline in refinancing is seen as a surprise given seven consecutive rate rises
  • New housing lending fell by 8.2% in September
  • Number of first home-buyers fell by 8.2%

The impact of seven consecutive interest rate rises has hit home, with subdued new borrowing and refinancing according to the latest ABS data.

New housing lending fell by 8.2% over September to reach $25.14 billion. Lending to owner-occupiers fell by 9.2% while lending  to investors fell by 6%.

Despite first-home buyers showing greater interest in the market during August, they tapered back in September, with the value of new lending falling by 6.8% to $4.05 billion. The number of first-home buyers fell by 8.3%, with only 8,485 new buyers in the market.

Refinancing to a new lender in September fell by 8.2% from the previous month, with $17.33 billion in loans refinanced.

Nonetheless, this activity is still 7.4% up compared to the same time last year, and follows a 5.3% rise in August, when financing reached an all-time high of $18.88 billion.

Canstar’s analysis has shown that borrowers faced a 27% increase in home loan repayments from May to September. This has added more than $650 in monthly repayments to a $500,000, 30-year loan.

Refinancing one way the burden could be lessened

Data from the Australian Prudential Regulation Authority (APRA) shows that 75% of loans in September were with one of the big four banks. Refinancing, Canstar research shows, from one of the big four banks to the lowest variable rate offer of around 4.58% could cut loan repayments by $425 a month for a $500,000 loan.

Commenting on the fall in both new lending and refinancing, Canstar Group Executive Steve Mickenbecker argued that “spring has not sprung this year” thanks to higher interest rates.

“The banks have been competing hard in the relatively low risk refinance segment to supplement declining volumes of new lending, but even refinance declined, albeit from an all-time record in August,” he said.

“The retreat of borrowers from the refinance market defies logic when a shift from the average package rate from the majors to the lowest in the market could save them almost 2.31 percentage points. This is effectively protection from another nine 0.25 percentage point Reserve Bank rate increases.

“We can expect refinance to rocket up in coming months, as fixed rate loans written in the boom of two years ago at rock bottom rates start moving to variable. A move to the average variable rate will see a doubling of many borrowers’ interest rates in one hit, surely enough to get them to sit up and take notice.”

Sep-2021 Aug-2022 Sep-2022 Difference % Change
Value of new housing commitments
Total Housing $30.83 bn $27.39 bn $25.14 bn -$2.26 bn -$5.69 bn -8.2% -18.5%
Owner Occupied $21.00 bn $18.54 bn $16.81 bn -$1.73 bn -$4.19 bn -9.3% -19.9%
Investment $9.83 bn $8.85 bn $8.33 bn -$527.5 mil -$1.50 bn -6.0% -15.3%
Value of refinancing to a new lender
Total $16.14 bn $18.88 bn $17.33 bn -$1.55 bn $1.19 bn -8.2% 7.4%
Owner Occupied $10.29 bn $12.78 bn $11.86 bn -$920.1 mil $1.56 bn -7.2% 15.2%
Investment $5.85 bn $6.10 bn $5.48 bn -$625.8 mil -$369.8 mil -10.3% -6.3%
Value and number of new construction lending for owner occupiers
Value $2.34 bn $2.32 bn $2.03 bn -$286.8 mil -$302.4 mil -12.4% -12.9%
Number 4,721 4,088 3,682 -406 -1,039 -9.9% -22.0%
Value and number of new lending for owner occupier first home buyers
Value $5.47 bn $4.35 bn $4.05 bn -$294.5 mil -$1.42 bn -6.8% -26.0%
Number 11,980 9,258 8,485 -773 -3,495 -8.3% -29.2%

Source – ABS, Canstar

In regards to APRA’s data, Mr Mickenbecker added that one would expect the big four to be open to the negotiation of a lower variable rate than the loan contract stipulates in order to retain borrowers with a  tried and tested repayment record.

“Even first home buyers retreated from the market in September following a blip up in August, with the number of buyers now down a whopping 29 percent and the value of new lending down 26 percent from a year ago.

“Affordability of higher repayments particularly bites into this segment and banks are also nervous about low deposit lending with the likely prospect of house price falls now and into next year.

“New home lending is still well above pre-pandemic levels, but the COVID property bubble has well and truly burst. September lending volumes show the reversion to the long term trend, and we’re still sliding,” he concluded.

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