According to the latest ABS Lending Indicators data property buyers are adjusting to current market conditions in different ways.
New lending has increased for the first time in 14 months while existing borrowers are responding to rising interest rates by refinancing at record levels.
In March, new lending rose by 4.9% compared to the previous month, resulting in $1.12 billion more loans written than in February.
Canstar Group Executive Steve Mickenbecker says:
“New lending has been in decline for 14 solid months and finally in March the trend has broken with a 4.9 percent increase for the month, surprisingly preceding the Reserve Bank’s decision to put the cash rate on hold in April.
The March increase in new home lending and April’s house prices together point to possible green shoots in the property sector. However, it’s too early to call a recovery with new lending off 26 percent over the year and property listings way down.
The Reserve Bank’s cash rate decision in May to resume rate increases could see the green shoots of recovery quickly wither.
This increase also included a 12.3% rise in the value of first-home buyer loans, totalling $3.94 billion of new loans."
Meanwhile, existing borrowers are also taking action
In March, a record $21.22 billion of loans were refinanced to a new lender, up 6.5% from February and a staggering 28.5% from the same period last year.
Owner-occupied mortgage holders are the most dissatisfied with their lender, shifting $14.19 billion of lending to a new bank.
All borrowers have been severely impacted by rising interest rates and higher loan repayments.
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Canstar's analysis reveals that borrowers are struggling with a 54% increase in home loan repayments from April last year to now.
The average variable rate for existing borrowers has risen from 2.98% in April 2022 to 6.73% after the May 2023 cash rate increase.
As a result, a $500,000 loan over 30 years would incur an additional $1,133 in repayments, while a $1 million loan would incur an extra $2,268.
However, refinancing from the average existing borrower rate of 6.73% to the lowest ongoing variable rate of 4.94% could save a borrower with a $500,000 loan over 30 years approximately $570 per month in repayments and over $205,000 in interest over the loan's lifespan.
Mr Mickenbecker further commented:
“The external refinance market continues to boom, hitting an all time high in March and up from $13.1 billion to $21.2 billion over two years.
The trend to refinance started in June 2019 and the momentum is building as Australians have discovered that there are greener pastures for refinancing over the fence.
With repayments up by 54 percent since April 2022, borrowers have plenty of incentive to refinance.
On a $500,000 loan a borrower can potentially save $570 a month in repayments, providing relief from half of the Reserve Bank increases of the past year.
An extra $6,840 a year back in a borrower’s pocket could help ease other cost of living strains.”