“Refinancing activity has remained at record highs in recent months, as borrowers continued to switch lenders amid interest rate rises,” according to the Australian Bureau of Statistics (ABS).
Owner-occupiers and investors refinanced a combined $20.2 billion of loans with external lenders in June, the ABS reported.
While that was 3.1% lower than the month before, it was 12.6% higher than the year before.
More significantly, the last 14 months have been the 14 biggest months in refinancing history.
Unfortunately, interest rate rises are affecting a lot of households at the moment. That’s why refinancing can be such a smart strategy. I can take a look at your existing loan and situation, compare the market and potentially present some options that may save you money.
Despite the interest rate rises that have occurred since last year, rates are lower than one would expect due to “strong competition between lenders”, according to the Reserve Bank.
Between May 2022 and June 2023, the cash rate increased by 4.00 percentage points. But during that same period, the average interest rate for outstanding variable-rate loans increased by only 3.37 percentage points.
When all outstanding loans (variable and fixed) are taken into account, the average interest rate increased by 2.75 percentage points during the same period. That’s because some borrowers still have low-rate fixed loans that were issued before the rate hikes began.
“The share of borrowers rolling off fixed-rate mortgages – taken out two to three years ago at low interest rates – onto much higher rates peaked at just under 5.5% of outstanding housing credit in the June quarter; it will stay high for the rest of this year, before declining in 2024,” the Reserve Bank said.
“These expiries will see the average outstanding mortgage rate continue to increase as the effect of the rise in the cash rate since May 2022 flows through to a greater share of borrowers.”
Property investors in much of Australia are enjoying very low vacancy rates – and one leading property researcher has forecast that is unlikely to change anytime soon.
The national vacancy rate in July was just 1.3%, according to SQM Research, which means there are very few untenanted rental properties right now. That makes it relatively easy for investors to find tenants and means renters will often accept higher rents to secure accommodation.
“Clearly, acute rental shortages remain with us. And besides more people grouping together to share the burden, there is no significant solution on the horizon,” SQM managing director Louis Christopher said.
Christopher added that the main cause of the tight rental market and fast-rising rents had been strong population growth. “Australia currently has, by far, the fastest growing population for any OECD country and clearly the rampant increases are currently breaching the country’s capacity to house all our people.”
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Deval Upadhyay
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