More borrowers are ditching their bank as refinancing rate picks up

The first cut to official interest rates in four years has prompted more home loan borrowers to dump their bank for a rival, as analysts report early signs of mortgage competition picking up.

Figures from digital property exchange PEXA show the number of refinancing deals rose notably in February and there has also been solid growth in March, following last month’s reduction in official interest rates, the first cut since late 2020.

Data for February and March show a pick-up in interest among borrowers to switch lenders.Credit: Rob Homer

The data from PEXA, which handles all refinancing deals attached to properties in Australia, shows refinancing in the country’s mainland states jumped 8.4 per cent in February compared with the same month last year.

Although refinancing is still below the record highs reached in 2023, PEXA chief economist Julie Toth said it remained well above the pre-COVID average. She expected the trend would continue if official interest rates fall further, as markets expect.

Toth said the February rise in refinancing was in response to the RBA lowering the cash rate to 4.1 per cent, and the trend suggested competition in financial services was working.

“It’s telling us quite a bit about how many people are responding quite quickly to a rate change,” Toth said.

“I think over the last five years in particular we have seen Australian consumers become more proactive in seeking out cheaper loans at every opportunity. We can really see that when rates change up or down, there’s quite an immediate reaction in the refinance volumes.”

The figures showed a mixed picture among the mainland states. Western Australia recorded the biggest increase of 29 per cent in refinancing in February compared with a year earlier, followed by a 16 per cent increase in Queensland, and 14 per cent for South Australia. Refinancing rose 4 per cent in NSW, and it declined 1 per cent in Victoria.

While falling RBA interest rates can push more customers to take an interest in their mortgage, rate changes can also spur increased competition from banks looking to grab business from rivals.

Westpac last week cut its offer to new borrowers on a digital loan to 5.84 per cent, giving it the equal lowest advertised variable rate of the big four, alongside ANZ Bank, said comparison website Canstar. The move does not affect existing borrowers, but Canstar said it was a sign of a coming jump in refinancing.

Analysts say mortgage competition has eased since the peak of 2023, when a bulge of COVID-era fixed-rate loans expired and banks fought to attract borrowers with cash-back offers and lucrative interest rate discounts.

However, some see tentative signs of competition increasing. Jarden analyst Matthew Wilson noted Westpac’s move last week, alongside pricing moves from National Australia Bank and Suncorp, saying in a report that “pricing tension” was picking up, although there was “little to suggest a material mortgage pricing war”.

Canstar’s data insights director, Sally Tindall, said changes in the cash rate typically prompted people to re-engage with their mortgage, and the amount of refinancing had remained high in recent quarters.

Loans worth more than $206 billion were refinanced in 2024, despite there being no change in official rates during the year, Canstar said. Banks’ lowest advertised rates are often for digital home loans, which cost banks less to process.

“Three of the big four banks are now in a digital arms race, jostling to steal customers from each other, but only those customers willing to apply digitally,” Tindall said.

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