Record number pursue a better deal on their mortgage as another rate hike looms
The number of homeowners ditching their bank for another mortgage provider has soared alongside rising interest rates – with another 0.5 per cent increase expected today.
NSW
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The number of homeowners ditching their bank for another mortgage provider has hit a record high in response to the rate-hiking campaign by the Reserve Bank of Australia.
New data from the Australian Bureau of Statistics reveals there were 24,697 “external refinances” in May, as the money mandarins of Martin Place were lifting the benchmark cash rate for the first time since 2010, to 0.35 per cent from 0.1 per cent.
That level of lender switching is 5000 higher than in April and 1000 more than the previous peak in August last year.
The refinancing trend is likely to intensify given the RBA increased rates by a further 0.5 per cent in June and is widely tipped to do so again on Tuesday – and possibly next month to boot.
Supporting the trend shown in the ABS data, Pexa Insights’ external refinancing index is also at a record high.
Pexa’s head of research Mike Gill said: “We would anticipate that as interest rates continue to rise … we are just going to see more and more refinancing.”
Mortgage Choice broker James Algar said that six months ago, refinances were about 40 per cent of his work.
“It’s now closer to 60 per cent,” Northern Beaches-based Mr Algar said.
It was possible to neutralise the RBA’s recent increases by refinancing, he added.
Banks are fighting harder to hold on to their customers, Home Loan Experts chief executive officer Alan Hemmings said.
Retention teams had “been more aggressive in the past two months”, Mr Hemmings said, offering deeper discounts to customers who were about to walk.
It appears that those markdowns for existing customers are being subsidised by new borrowers.
Mr Hemmings said that until recently, when negotiating on behalf of a new customer it was possible to save 1.2 to 1.4 per cent off the advertised standard variable rate. Now it’s only 1 to 1.2 per cent.
Meanwhile, 25 out of 26 top economists surveyed by Bloomberg are predicting the RBA will lift its cash rate to 1.35 per cent from 0.85 per cent on Tuesday following its monthly board meeting.
The other economist is forecasting an even larger jump of 0.75 per cent.
A majority of those surveyed are also tipping a 0.5 per cent increase in August, which would bring the cash rate to 1.85 per cent.
Among those expecting 50 basis point hikes this month and next is St George Bank.
Its senior economist Jarek Kowcza said the RBA was facing “elevated” inflation that was likely to rise even further. There was also wage pressure in the offing.
“In such an environment, it is important for the RBA board to unwind monetary policy stimulus and return the cash rate to a more neutral environment,” Mr Kowcza said.
“At 0.85 per cent, the cash rate remains in stimulatory territory.”
A 50-basis point increase adds more than $200 a month to repayments on an $800,000 loan over 25 years.
The ABS external refinancing figures showing a record high were in its “original series” data. The “seasonally adjusted” data for May showed it nearing but not surpassing levels of last August.
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