Finance Research

Borrower confidence surges amid rate hike pause

Confidence amongst mortgage borrowers spiked in April after the central bank held the cash rate unchanged this month, new data has revealed.

The Westpac Melbourne Institute Consumer Sentiment Index showed that confidence amongst respondents with a mortgage lifted by 12.2 per cent in April.

However, it is still 14.5 per cent below its level before the Reserve Bank of Australia’s (RBA) tightening cycle began.

Overall consumer sentiment also increased by 9.40 per cent from 78.4 in March to 85.8 in April.

Westpac chief economist Bill Evans said the decision by the RBA to pause its rate hikes is the key to this resurgence.

RBA governor Philip Lowe addressed the National Press Club on 5 April (a day after the RBA board announced its decision to hold the official cash rate at 3.60 per cent after increasing rates 10 consecutive times) to explain the board’s decision.

He said the board decided to hold interest rates to give it more time to assess the economic outlook and the impact of the interest rate hikes so far.

At the next meeting, the board will review the setting of monetary policy again, with the benefit of an updated set of forecasts and scenarios, Mr Lowe said.

Confidence is now at its highest level since June 2022, although it is still 10.40 per cent below April 2022, the month before the RBA began raising the cash rate.

Despite this rise in April, Westpac has characterised consumer sentiment as weak and consistent with its view that consumer spending through 2023 and at least the first half of 2024 will be lacklustre.

According to the Westpac survey, which was conducted between 3 and 6 April and covered the RBA board meeting on 4 April, 34.11 per cent of respondents still expect the standard variable rate to be raised by more than 1 per cent over the next year.

“That proportion is certainly down from 44.55 per cent in March and 59.64 per cent in November but still points to considerable apprehension around interest rates on the part of consumers,” Mr Evans said.

The “Time to Buy a Dwelling” index has remained weak despite an 8.20 per cent increase from 65.7 to 71.1 in April.

Mr Evans said he believes this measure of confidence in housing is heavily influenced by affordability.

“The April result only restores the index to the 70 to 80 range, where it has held since the tightening cycle began,” Mr Evans said.

“And recall that this index is still 46 per cent below its peak back in November 2020.”

Confidence in the outlook for house prices has boomed, with the national index of House Price Expectations rising by 16.7 per cent to 130.31, only 2.80 per cent below its level in April last year just before the RBA began to raise the cash rate.

The index has increased by a whopping 43.00 per cent since its recent low in November last year.

Confidence in the outlook for prices in April has lifted even more sharply in Queensland (up 30.00 per cent) and Western Australia (up 36.00 per cent) compared to NSW (up 16.00 per cent), and Victoria (up 9.5 per cent).

Mr Evans concluded by stating that Westpac expects that a final 0.25 per cent increase in the cash rate at the next board meeting on 2 May remains the best approach instead of waiting for even more information and risking even higher rates later in the cycle.

Refinancing at record high: ABS

The consecutive rate rises by the RBA have seen borrowers continue to switch lenders for lower interest rates.

According to the lending indicators data released by the Australian Bureau of Statistics, the value of owner-occupier housing loan refinancing between lenders rose by 3.5 per cent to a new record high of $13.6 billion in February 2023.

Meanwhile, Aussie Home Loans has warned that 50.22 per cent of mortgage holders’ fixed rate loans are about to expire by September 2023.

The data from more than 1,500 mortgage holders revealed that almost half of NSW borrowers had refinanced since January (totalling $422.53 million), followed by 22.75 per cent of Queenslanders and 19.5 per cent of Victorians.

The data also showed a fall in the maximum median borrowing power by more than $100,000, or 11 per cent, between January and September 2022.

If you’re looking to refinance for a better rate or are looking for the right rate for your clients at zero cost, contact Finni Mortgages’ experts and let us do the hard work for you.

Visit our website here or call 1300 002 023 to learn more on how we can help you.

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