Borrowers continue search for lower interest rates

Interest rate hikes are continuing to bite with large numbers of home mortgage holders seeking to refinance as a buffer.

The Australian Bureau of Statistics reported the total value of housing loan refinancing between lenders fell 1.5 per cent but remained high at $19.1 billion in December.

Refinancing levels for owner-occupiers hit $13 billion in December, just below the record $13.4 billion set in November.

“Recent months saw record high refinancing activity for both owner-occupiers and investors,” ABS head of finance and wealth Sean Crick said.

“Borrowers continued to switch lenders for lower interest rates as the RBA’s cash rate target rose.”

The value of total new housing loan commitments continued to decline in December – dropping 4.3 per cent to $23.4 billion.

New owner-occupier loan commitments fell 4.2 per cent to $15.6 billion, while new investor loan commitments fell 4.4 per cent to $7.9 billion.

The value of total new loan commitments for fixed term personal finance fell 2.8 per cent in December, driven mainly by a 1.6 per cent fall in car loans.

Lending for the purchase of household goods rose 0.8 per cent to another record high, while lending for travel and holidays rose 11.2 per cent to the highest levels seen since late 2018.

BIS Oxford Economics’ Maree Kilroy said higher construction costs and the rebasing of land lot prices were driving continued declines in loans for residential land, which reached its lowest level since early 2019.

She said the pace of property price declines was expected to soften further through the first half of the year, with lower than average new listings helping to stabilise the market.

“Our forecast is for the September quarter to represent the bottom for national property prices, with turnover beginning to improve soon after,” she said.

“Some cities will recover earlier than others.”

Canstar analysis showed borrowers faced a 42 per cent increase in home loan repayments from May to December, adding $888 to repayments on a $500,000 loan over 30 years or $1778 on a $1 million loan.

It said refinancing from the average existing borrower rate of 5.98 per cent to the lowest ongoing variable rate of 4.29 per cent could save a borrower with a $500,000 loan over 30 years about $520 a month in repayments and more than $187,000 in interest over the life of the loan.

RSM Australia property and construction national leader Adam Crowley said the combination of high inflation and eight consecutive interest rate rises with the likelihood of further increases were a cause for concern for property buyers.

“New home loans taken out by owner occupiers and investors have been declining since the first rate hike in May 2022, with the total value of new housing loans [excluding refinancing] dropping 25 per cent to $23.4 billion in December 2022,” he said.

“In contrast, over the same period the total value of loans being refinanced has jumped just over 11 per cent.”

– BY PAUL OSBORNE/ AAP