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amount of wholesale refinancing to be funded in the months ahead, we anticipate the bank cashback offers to be slowly withdrawn from the market as funding conditions return to normality.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


Advertisement

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

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • 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%
UNLIMITED REDRAWSSPECIAL 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%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • 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
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 29, 2022. 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. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

Latest Articles

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.

Be Savings smart.
Subscribe for free money newsletters.

By subscribing you agree
to the Savings Privacy Policy