ABS home lending stats show record value of borrowers looking for lower rates

A record $13.4bn in mortgages was refinanced in November, as new lending slumped and analysts warn about banks’ mounting loan losses from distressed borrowers.

Mortgage refinancing has hit record highs, while new lending has slumped to pre-pandemic lows. Picture: NCA NewsWire / David Crosling

Owner occupiers have set a record after more than $13.4bn in mortgages were refinanced in November, according to new data, but warning lights are blinking for banks exposed to looming bad debts.

The Australian Bureau of Statistics revealed on Friday lending to owner-occupiers refinancing their home loans had lifted 9.1 per cent, setting a new high, amid a rush of borrowers looking to lock in lower rates amid aggressive interest rate rises.

This comes as the data from the ABS showed total new loan commitments for housing slumped a further 3.7 per cent, blowing past market expectations of a 3 per cent contraction.

ABS head of finance and wealth Dane Mead said the data showed borrowers switching lenders as the cash rate climbed to 2.85 per cent in November.

“The number of owner-occupier dwelling commitments also continued to fall in November to below the pre-pandemic level for the first time,” Mr Mead said.

The cash rate was raised again in December, hitting 3.1 per cent, its highest level since November 2012, with investment bank UBS expecting it to peak at 3.35 per cent in February.

In a note to investors UBS analyst John Storey warned house prices would slump at least 15 per cent.

“If the RBA hikes in line with markets, then the housing market will crash. Housing sentiment also remains weak,” Mr Storey wrote.

The number of new loan commitments to owner-occupier first home buyers fell 5.5 per cent in November 2022, driving the overall fall in owner-occupier lending.

First homebuyer loans in November were 51 per cent below their January 2021 peak and 16 per cent below the February 2020 pre-pandemic level.

The refinance rush comes ahead of a looming cliff for many borrowers who took out loans at record lows during the pandemic.

UBS said almost $500bn in mortgages will roll off fixed rates by December 2024. Almost $266bn in loans are expected to come off fixed rates in 2023.

Mr Storey said banks were well placed to absorb losses that will come as the loan roll off accelerates in the second half of 2023, as many borrowers are faced with being unable to pay sharply higher mortgages.

“We see (Westpac) and (Commonwealth Bank) as the best positioned for the roll off benefits, but Macquarie offers competitive rates which could be a potential threat to market share when consumers consider refinancing their loans,” Mr Storey wrote.

UBS noted Westpac was the most sensitive to a downside scenario, while ANZ was best placed to withstand any downturn.

“We think the higher level of collective (Stage 1&2) provisions that the Australian banks are carrying relative to (non-performing loans) in this interest rate hiking cycle will provide a buffer to earnings if asset quality (housing related) turns out to be worse than expected,” Mr Storey said.