Mortgage holders adjusting to ‘new normal’ of higher interest rates, while loan refinancing reaches record highs
The Reserve Bank of Australia’s (RBA) Board agreed to hold the cash rate steady at 4.10% for a third consecutive month today, increasing hopes that this may be the peak in the current rate-rising cycle, while new data from PEXA shows loan refinances hit record highs this month – but still no sign of a ‘mortgage cliff’.
PEXA Chief Economist, Julie Toth, said today’s pause will be welcome news for current and prospective mortgage holders, who are still in the process of adjusting to previous interest rate rises.
“Australia’s housing markets stabilised in early 2023 and have been recovering since around March, with a gentle lift in prices and sales volumes across most locations. Today’s extended pause in monetary policy tightening will help foster greater confidence in the housing outlook, particularly among most buyers who rely on mortgages to finance their homes,” Ms Toth said.
“However, the much-hyped threat of a “mortgage cliff” for up to 800,000 fixed-rate borrowers has so far failed to materialise in 2023. Instead, we are seeing record-high numbers of borrowers actively refinancing their loans and/or recalibrating other areas of discretionary spending in order to accommodate this ‘new normal’ of higher mortgage costs and keep up with their mortgage commitments,” she said.
ABS data indicate around 3.8 million Australian households (35%) are currently paying off a mortgage on their own home. Up to a third had opted for fixed rates on all or some of their debt in recent years, while many others have fixed-rate mortgages to fund investment or rental properties.
Ms Toth said “PEXA’s latest data shows Australians are actively refinancing their loans at record rates which is helping to cushion the majority of Aussie mortgage holders from the recent rate hikes and reducing their likelihood of falling behind in repayments, as they make lifestyle adjustments.
“PEXA’s Refinance Index shows loan refinancing volumes hit a new record high in the first week of September, with the Index reaching 212.2 points in the week ending 3 September (seasonally adjusted). The Index confirms refinancing volumes are up by 3.2% from one month earlier and up by 18.8% from the same week in 2022.
“To put it into context, we’re seeing more than double the volume of refinancing activity now compared to the lowest periods of Australia’s COVID-19 years in April-May 2020 and Feb-March 2021.
“Subsiding inflationary pressure for other goods and services are also helping households across the nation in meeting their loan commitments. All of this helps to explain why mortgage arrears rates ticked up only slightly from very low levels in FY23 – according to S&P, it’s estimated just 1% to 1.5% of east-coast mortgagees were more than 30 days behind in their repayments in June 2023, with slightly higher rates in WA and NT,” she said.
“Looking ahead, the RBA continues to warn that further rate rises are not completely out of the question during FY24. While Australia’s domestic economy might not require further rate rises in order to push down inflation more firmly, international events such as developments in China and the ongoing Russia-Ukraine conflict may impact the Australian dollar and impact the domestic outlook,” she said.
For more information and PEXA research reports, visit PEXA’s content hub
For more information, please contact:
Danielle Tricarico – Head of Corporate Affairs, PEXA
M: 0403 688 980
PEXA is a world-leading digital property exchange platform and property insights solutions business, listed on the Australian Stock Exchange and born out of a COAG initiative to digitise the industry. Since 2014, PEXA has facilitated more than 15 million property settlements through the PEXA Exchange in Australia, with 88% market reach in Australia. PEXA has launched refinancing capability in the UK.
The PEXA Group of companies, including .id (Informed Decisions), Value Australia and Land Insight, deliver digital insights and property solutions that help government, financial institutions, banks and property practitioners to unlock the future value of property.