In mid-2023, monthly mortgage refinances reached an unprecedented high of $21.5 billion, a significant increase from the approximately $10 billion reported in mid-2020, as per data from the Australian Bureau of Statistics.
One of the driving factors behind this surge in refinancing was the transition from ultra-low fixed-rate loans, which hovered around 2%, to variable rates between 6% and 7%. Many borrowers sought better deals from different lenders in an attempt to reduce their repayment burden.
Fixed Rate Mortgages Fizzle Out
However, the availability of cheap fixed-rate mortgages is diminishing as most of the pandemic-era offers have expired. Consequently, the surge in refinancing is likely to decline in the future.
Despite the fading refinancing trend, Australian households are currently burdened with a record proportion of their incomes dedicated to debt repayment. The debt-servicing ratios for housing loans are at an alarming level.
The Impact of Interest Rate Hikes
Last month, the Reserve Bank of Australia (RBA) implemented a 0.25% rate hike, which will increase the burden of mortgage repayments for households. As a result, the overall debt burden is expected to rise.
While the mortgage refinancing boom has clearly ended, it is anticipated that activity in this sector will remain above average in the coming year. However, the glory days of the boom are long gone.
