Refinancers – Page 2 – Digital Finance Analytics (DFA) Blog

We continue to discuss the segmented findings from the latest edition of The DFA Property Imperative report, which was released this week. Today we look at the refinancing sector.

There are around 673,000 households considering a refinance of an existing loan of which 79% relate to an owner occupied property, and 21% to an investment property. To assist in the refinance, 75% of households will consider using a mortgage broker.

Households are looking to refinance for a number of reasons, including reducing monthly repayment (40%), to lock in a fixed rate (15%), because of a loan rollover (14%), in reaction to poor lender service (11%), for a better rate (5%) or to facilitate a capital withdrawal (15%).

In the next 12 month, 23% of these households are likely to transact (a rise from 14% last time), whilst 53% expect house prices to rise in the next 12 months.

The growth in refinancing can be expected to continue as the focus turns from investment lending to owner occupied new and refinance loans. There are a number of discounted offers for refinancing currently available. We note that a smaller proportion are refinancing to a fixed rate.

Within our data, we see that borrowers with larger loans are more likely to refinance to an interest only loan.

We also found that about 38% of loan refinance transactions were in the $250-500k range. Many potential refinancers have held their loan for more than 2 years, and may well benefit from accessing current keenly priced alternatives.

Lenders are homing in on existing owner occupied borrowers in the hope of persuading them to churn their loans. Mortgage Brokers in particular will see this as an opportunity as the growth in investment loans slows. The removal of exit fees makes it easier for households to move, and with incentives including cash-back and no fee offers in the market they are firmly in the spot light. We expect to see a rise in the proportion of refinance borrowers who leverage the capital appreciation of their property by withdrawing some additional capital.

It is worth saying that there are also more than than 808,000 households who are holding property, with 81% owner occupied and 21% investment. Whilst 431,000 of these properties are owned outright and are mortgage free, the remainder have a mortgage and may well be able to benefit from current offers. However, they will need to be enticed, as they do not plan to transact at the moment. Players may well consider some segment specific campaigns.

Of these holding households, 72% expect house prices to rise in the next year, but under 1% would consider using a mortgage broker because they are by definition not intending to transact in the next year (99%).

Next time we will look at up-traders.

We have been looking in detail at recent trends in housing refinance, by using a combination of the recently released ABS data and results from the DFA surveys. There is an interesting story to tell here. So today we explore the refinancing landscape. First the ABS data shows us that refinancing value has been increasing to a record $5.9bn in July 2014, and represents more than 30% of all owner occupied lending, and about 17% of all housing lending.

We also see that the state distribution is centered on NSW and VIC.

However, looking in percentage terms, there is only a small rise in NSW, and a fall in QLD.

Turning to our surveys, about 17.5% of refinacing are to fixed loans, the rest variable, either principal and interest or interest only. A considerable proportion of refinance deals are via brokers, with a record 74% in September.

Households with loans between $250k and 500k are likely to refinance, though those with larger loans are more likely to refinance their loan, compared with those with below $100k balances.

Turning to the loan type, the majority are refinancing to a principal and interest loans (P&I), though we note that those with larger balances are more likely to consider an interest only loan.

Looking in more detail, we see that brokers are more likely to initiate a conversation with a household on refinancing if the loan is larger. Many are driven by the need to reset the term (this relates to the industry practice of having a nominal 30 year term, with five year reviews, plus fixed term loans maturing). We also see a concern to reduce monthly payments, especially in the loans between 250k and 500k, and to release cash in the case of larger loans, especially above $750k, where we assume the capital appreciation in the property is most significant.

In the survey detail, we found that some were releasing capital to assist in the purchase of an investment property, or to assist others to purchase a property. Refer to the recent post on the Bank of Mum and Dad. Most households who were concerned about rates have already locked into fixed products, though many still preferred the variable rate product. We also found that more than 50% of households considering a refinance were ahead of schedule on their nominal monthly repayments. Those in the range 250k – 500k were least likely to be ahead.

Overall then, refinancing is a significant element in the property owning household sector, and yet there has been little discussion of this facet of the market, compared with first time buyers and investors.

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