Rising interest rates dampened new loan values in 2023 but led to a surge in refinancing activity as borrowers shopped for better mortgage rates, according to new research.
The latest Mortgage Insights Report by digital property exchange platform PEXA has revealed that the aggregate value of new home loans declined by 12.7 per cent from 2022, with Australians borrowing $300.9 billion to fund property purchases in the 2023 calendar year.
This was a reflection of the impact of rising interest rates and cost of living pressures, the report said.
Since the Reserve Bank of Australia began its rate rise cycle in May 2022, it has hiked the official cash rate 13 times from a record low of 0.1 per cent to a 12-year high of 4.35 per cent in November 2023 (it paused hikes in December and February).
The PEXA report – which examines loan activity across the five mainland states of Australia for the 2023 calendar year – showed that a total of $613.0 billion worth of property was purchased nationally in 2023.
While buyers borrowed $300.9 billion in new lending to fund these purchases, the remaining $312.1 billion was funded with cash or other forms of financing, such as via deposits, outright cash purchases, or loans not attached to the property being purchased.
Refinancing rises as rates rise
On the other hand, refinancing increased by 11.4 per cent in 2023 as homeowners hunted for better home loan rates, PEXA’s data indicated.
The report found that 452,025 existing loans were refinanced in 2023, while refinanced loans reached a total aggregate value of $220.4 billion (up 11.4 per cent on the prior year).
However, PEXA’s head of research Mike Gill said that while refinancing volumes increased significantly across all the mainland states in 2023, there was a marked decline in the final quarter of the year.
“This late decline suggests that Australian refinancing activity may have peaked, in response to the strong upswing in the interest rate cycle in 2023 and in line with the surge in fixed-rate loans in the preceding two to three years,” Mr Gill said.
“The Reserve Bank raised official interest rates to 4.35 per cent in November of 2023 after pausing for the prior three months.
“Typically, rate hikes spur refinancing activity as homeowners seek better options for their home loans. However, the timing of this rate increase, so close to the end of the year, may have hindered many homeowners from taking action before the Christmas break.”
NSW led the nation in terms of refinance value, with $79.6 billion of mortgages refinanced in the state in 2023, while Victoria ranked a close second with $71.9 billion.
Victoria recorded the highest number of refinances compared to any other state at 148,368 in 2023, up by 10.0 per cent from 2022 and ahead of NSW (which finished with 134,934 refinanced loans).
Lending drops across states
Lending decreased across all mainland states in 2023, with the largest states of NSW and Victoria falling to $109.5 billion and $84.1 billion respectively.
The aggregate value of new lending in Queensland held steady at $63.3 billion and dropped marginally in Western Australia and South Australia to $26.8 billion and $17.2 billion respectively.
For the first time since the pandemic, median loan values fell, with the report finding that it dropped to $647,000 in NSW and $497,000 in Victoria.
However, Queensland defied this trend, reflecting the ongoing strength in demand in the state, with the median loan value increasing to over $464,000 in 2023.
Western Australia proved to be the most resilient state for new loans, with 63,059 new loans in 2023. This was only 5.2 per cent lower than in 2022, compared to the larger declines recorded in other states.
Mr Gill commented that the declines in median loan values “indicated a slight improvement in buyer affordability, with Aussie buyers now setting their sights on borrowing smaller amounts to fuel their property purchases”.
“In the commercial lending space, Australia’s eastern states experienced a notable new loan volume dip of 13.4 per cent in 2023. The number of new commercial loans declined substantially in NSW (20.7 per cent) and Victoria (16.3 per cent),” he said.
“This saw Queensland overtake the larger states, with the highest number of new commercial loans in 2023.”
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.
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