“Overextended” borrowers with larger home loans rushed to refinance in October as rapid rate hikes eat into their pockets, according to Joust.
Australian home loans marketplace Joust has released data from its live auction service, which revealed a 6.15 per cent spike in the size of loans accessed nationwide in its refinance category for the month of October 2022 ($540,149) compared to the same month in 2021 ($508,838).
Joust noted that the desire from borrowers to refinance larger loans has followed a September quarter that saw a 7.3 per cent increase in the Australian Bureau of Statistics (ABS) consumer price index.
While the data was compiled when the Reserve Bank of Australia (RBA) increased the official cash rate by 25 bps to 2.85 per cent, the central bank increased the cash rate by another 25 bps in December to 3.10 per cent.
The Joust data also showed that borrowers are simultaneously taking out smaller loans to buy and build homes.
Indeed, there was a 16.97 per cent drop in the size of home loans accessed in Joust’s “buy” category in October 2022 compared to October 2021 (falling from $725,586 to $602,430), as well as an 11.17 per cent drop in loan size in the “build” category (down from $767,243 to $681,538).
Joust group chief executive officer Carl Hammerschmidt said the data is a clear indication that many borrowers were initially unprepared for this year’s official cash rate hikes by the RBA, which was passed on by many lenders.
“The increase in people across most states looking to refinance larger home loans shows that those who got into the market during record low interest rates are now finding themselves overextended,” he said.
“So, while loan sizes for the purpose of buying and building fall, we’ve seen people with larger loans looking on Joust for a better deal as not only mortgage repayments spike, but so do things like groceries, petrol, and other day-to-day expenses.”
South Australia recorded the largest jump in loan sizes for refinancing accessed through Joust, up 40.70 per cent for the month of October 2022 compared to October 2021.
This was followed by the ACT (up 20.82 per cent) and NSW (13.00 per cent).
On the other hand, loan sizes for the purpose of refinancing fell over the same period in Queensland (down 7.20 per cent) and in Victoria (down by 1.12 per cent).
Mr Hammerschmidt noted that the trends seen across the states could continue into the new year.
“With many economists predicting rates are likely to reach the mid-3.00 per cent range by early 2023, what’s important for all mortgage holders to keep in mind at the moment is that it’s not too late to find a better deal,” he said.
“The positive side of rising rates is that lenders are being forced to compete for not only new business, but to keep existing business as well, it’s important to look at your refinancing options as soon as you can.”
Recent ABS Lending Indicators data revealed that refinancing remained at record highs in October 2022 at almost $18 billion.
While the value of owner-occupier refinancing between lenders fell by 1.3 per cent in October 2022, it remained above $12 billion since June 2022, which is well above pre-pandemic values, and close to the all-time high of $12.5 billion seen two months ago, according to the ABS.
Katherine Keenan, ABS finance and wealth spokesperson, said: “The RBA cash rate increased 225 basis points between June and October 2022, which coincided with a greater number of borrowers seeking loans with lower interest rates from competing lenders.”
If you’re looking to refinance for a better rate or 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.