Refinancing bounces back after hitting a near record high

Refinancing bounced back in the month of May, increasing by $1.58 billion to a total of $20.97 billion – the second highest monthly value for external refinancing on record.

The ABS lending indicators released today showed the total value of mortgages refinanced since the start of the rate hikes is now $247 billion, in seasonally adjusted terms.

Total value of refinancing – May 2023

Source: ABS Lending Indicators May 2023, released 3 July 2023, seasonally adjusted data.

New home lending back on the rise as property market continues to heat up 

The value of new home loans increased across both owner-occupier and investor lending in the month of May when compared to the previous month. In total it rose by $1.13 billion, or 4.8 per cent, in seasonally adjusted terms, despite the soaring cash rate.

That said, the figures for May were down significantly when compared to the same time a year ago, when the cash rate hikes were yet to have a material impact.

Value of new home loans approved in May 2023

Source: ABS lending indicators for May 2023, released 3 July 2023, seasonally adjusted data.

More buyers get the green light for their first home

The number of owner-occupier first home buyers increased in May with a modest 2.7 per cent rise compared to the previous month, as some buyers opt for mortgage rate rises over rent increases.

However, the number of first home buyers in the market today compared to a year ago, has dropped. This is largely due to the dramatic drop in people’s maximum borrowing capacity as a result of the RBA hikes.

New home loan applications are typically stress-tested at a rate that’s 3 per cent higher than the rate they applied for.

As a result, buyers in May 2022 with a 10 per cent deposit taking out a big four bank variable rate loan are likely to have been stress-tested at 5.79 per cent. Today, the stress test for a similar borrower is at 9.87 per cent.

Owner-occupier first home buyers – May 2023

Source: ABS lending indicators for May 2023, released 3 July 2023, seasonally adjusted data.

Variable loans continue to stay in favour

The latest ABS figures show just five per cent of new and refinanced home loans were secured at fixed rates, with borrowers opting to keep their powder dry on a more flexible variable rate in case the cash rate falls in 2024, as forecast by a number of economists.

Source: ABS lending indicators for May 2023, released 3 July 2023, original data.

RateCity.com.au research director, Sally Tindall, said: “The perpetually rising cash rate seems to have done little to dampen home buying activity in the month of May.”

“The maximum amount people can borrow from the bank drops with every rate hike, yet property prices and home lending have continued to climb in recent months as a lack of stock keeps the pressure on prices,” she said.

“It’s great to see refinancing back on the rise, hitting the second highest level in ABS records. The big four banks may be turning their backs on the refinancing market, but borrowers are still charging ahead.

“The next few months will see thousands of borrowers come off their fixed rates and continue to drive refinancing activity.

“While some people who borrowed at capacity may find themselves with limited options when they come off their fixed rate, CBA and Westpac’s lowering of the stress test for select refinancers has opened up the possibility of them now being able to refinance.

“With the potential for up to three more rate hikes still to come, more banks will hopefully revisit their servicing policies for refinancers stuck in mortgage prison,” she said.

Compare home loans in Australia