With the banks in an all out battle for home loan business and a new ban on exit fees for new loans, borrowers are in the throes of a refinancing frenzy as they take advantage of the current array of deals on offer and do a lender switcheroo.
Many in the industry say that now is the perfect time to consider refinancing; whether you’re a home owner who just wants a better product or an investor who wants to build a cash buffer, we haven’t seen such fierce competition, and the opportunities that go along with it, in the finance sector for years.
In an article in The Australian, RateCity’s chief executive Damian Smith says that while the number of first home buyer loans and investor loans were down by 13 per cent and 29 per cent respectively for April, refinanced mortgages rose by 3 per cent, according to data from the Australian Bureau of Statistics.
And the more recent May stats shows that more and more Australians are getting loans in preparation for buying another property.
Australian Bureau of Statistics May housing finance data points to a recovery in the home loan market. Housing finance for owner-occupiers rose 4.4 per cent in May. Lower prices and steady interest rates appear to be luring cautious households into the market.
In the article Smith explains that the increase is partially due to people refinancing to borrow more and renovate or extend, as well as borrowers moving loans as their fixed rate period comes to an end. But these two factors are not the sole reason for the recent increase in refinancing activity.
“There’s no particular reason for the first two to be more or less than they were a year ago,” says Smith. “In fact, if it was renovation borrowing, you would expect to see the size of the mortgages go up substantially, which has not happened.
“We reckon the only reason for refinancing to be up year on year is switching activity.”
He says the real “smoking gun” driving the rise in refinancing is the ban on early exit fees; federal treasurer Wayne Swan’s attempt to revitalize competition within the mortgage market.
Swan’s lending reform caused more than a bit of controversy, as detractors claimed it would allow the big four banks to increase their monopoly on the mortgage market. They said early exit fees enabled small, non-bank lenders to compete by offering lower interest rates and without these fees, they would no longer be able to afford such generosity.
However Swan was determined to send a message to the big boys, who went above the Reserve Bank’s head in December last year and hiked up their retail rates beyond the official RBA rise.
If you are considering refinancing you’ll find many banks have become investor friendly lately, but don’t be lured by low fees or a 0.25% difference in rates – which obviously could change over time.
Instead consult a property invest savvy finance broker who understands your long term goals. I’ve found that flexibility in their loans and the ability to re draw equity are two important criteria for investment loans.
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