Rate rise fears fuelling home refinance splurge
THE home-loan refinancing boom has continued into the new calendar year after a record 2021, fuelled by speculation about looming Reserve Bank rate rises.
The number of external refinancings where the borrower switched lenders spiked to 363,978, up 28 per cent from 2020, digital property settlement platform PEXA found.
The 2020 figure was 21 per cent higher than 2019.
While volume growth slowed in the first two months of 2022, it was still comfortably ahead of a year ago and higher in value terms.
PEXA head of research Mike Gill said there had been “amazing” growth in the refinancing market over the past two years.
“Record-low interest rates, combined with increased speculation in the market of imminent rate rises, has driven property owners to refinance right across the country, particularly in the second half of 2021,” Mr Gill said.
“Rate decreases are a significant
motivator for borrowers to refinance, but rate rises are an even higher driver of activity.”
Refinancing, which is driven by a planned renovation or borrowers simply on the hunt for a lower rate, is an important driver of activity levels in the property market, albeit overshadowed by actual sales.
Last year, there were 832,000 property sales worth $688bn, up 53 per cent on 2020, compared to the 363,978 refinancings.
All states reported doubledigit rises last year, with Victoria leading the way with a 19 per cent, year-on-year volume increase to 125,071.
The PEXA refinance index, which has tracked the number of refinancings since October 2018, hit a record high of 168.3 points in the week ending October 17, 2021. It remained above 160 points for the final three months of 2021.
In the second half of last year, borrowers stampeded into ultra-low fixed-rate loans, amid mounting expectations that the RBA would soon be forced into raising the cash rate for the first time since November 2010. This was despite RBA governor Philip Lowe’s forecast that the target rate would not be lifted until 2024.
Canstar group executive Steven Mickenbecker said the fear of a succession of rate rises was well-founded, as many new home owners had never actually experienced a rate rise. Mr Mickenbecker said previous cycles showed the RBA lifted rates an average of six-eight times over two years.
“That would mean people could expect to pay 1.5-2 percentage points more than they are now, which is a scary prospect for some people,” he said.