Refinancing is at a record high, but why now?

author-avatar By on September 03, 2021
Refinancing is at a record high, but why now?

Homeowners are quick to lock in fixed interest rates as refinancing numbers hit an all-time high in July. This begs the question of why.

The Australian Bureau of Statistics (ABS) released its lending indicators from July 2021 which revealed that refinancing reached a record-breaking high of $17.2 billion.

Katherine Keenan, ABS Head of Finance and Wealth, said that this rise can be attributed to a few key factors.

"This reflected borrowers seeking out lower interest rates, particularly for fixed rate loans, and cashback deals across a large number of major and non-major lenders," Ms Keenan said.

ABS data showed that external refinancing for housing is up 6% in July. This represents a 4.9% rise for owner-occupier mortgage refinancing, and an 8.3% increase for investor mortgage refinancing.

External refinancing means borrowers finding a new loan with another lender, rather than asking for a better deal with their current lender.

From this time last year, total external refinancing is up 60%, or $6.45 billion, while fixed rate loans now make up almost half of the mortgage market.

Savings.com.au gleaned the average external refinancing value from ABS data, and found it hit nearly $500,000 in July, as per the graph below.

Why is there a record level of refinancing?

James Austin, Chief Financial Officer at non-bank lender Firstmac, says that existing borrowers are being enticed by offerings such as cheap fixed rates and cashback deals, which could cost them more in the long run.

"Much of this activity is a legacy of the RBA's Term Funding Facility (TFF) which offered banks cheap three year funding at a cost of only 0.10%," Mr Austin told Savings.com.au.

The TFF provided in excess of $200 billion in cheap funding to banks, to the exclusion of non-bank lenders - coincidentally riskier loans also increased their marketshare. 

"Whilst the TFF finished at the end of June 2021, the Banks still have surplus funds drawn down from this facility in late June," Mr Austin said.

"With a large amount of wholesale refinancing to be funded in the months ahead, we anticipate the bank cashback offers to be slowly withdrawn from the market as funding conditions return to normality.

"As such this government-induced mortgage book churn should soon dissipate."

This spike in refinancing comes after recent research from Aussie found that homeowners have been slow to refinance, despite record-low interest rates.

Of the 1,003 homeowners surveyed, 62% were aware of the benefits of refinancing, but only 20% actually refinanced in the last year.

Locked down and looking at finances

Data from digital lender Nano shows up to 80% of its applications come from people refinancing away from 'traditional lenders'.

"The stay-at-home orders have allowed customers extra time to reassess their home loan situation and identify refinancing opportunities for saving money on their interest payments, particularly in this time of uncertainty," Nano CEO Andrew Walker said.

"Many consumers are starting to look at the newer players, such as Nano as better options. Borrowers are looking for a lender with the whole package: Fast, uncomplicated processes, low rates and no fees.

"Being able to complete your home loan application digitally in your own time, outside of standard business hours, with no paperwork is a massive plus for customers during lockdown."


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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^

Rates correct as of October 23, 2021. View disclaimer.


Image by nattanan23 on Pixabay

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

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