Major brokerage sees surge in refinancing deals

Further, the share of refinancing surged from 35 per cent to 40 per cent of Aussie’s total loan volume over the three months, compared with the corresponding period in 2015.

According to the brokerage, the rise is largely due to the August rate cut, but also to an increasing awareness of what brokers can offer.

The chief executive of Aussie James Symond commented, "The surge in refinancing reflects both the effects of the Reserve Bank’s cut in rates during August and the message getting through to borrowers that they can secure a better deal through a mortgage broker.

"With rates at the current historic lows and competition amongst lenders at an all-time high, borrowers are now keenly aware they could save thousands of dollars and years off the life of their loans through refinancing."

Mr Symond concluded, "Lenders are fighting for market share with some offering attractive incentives to get customers to switch their home loans to them through a mortgage broker".

Refinance approvals now over 30 per cent

Indeed, the recently released JP Morgan Australian Mortgage Industry Report, has found that refinancing has been steadily rising, with the share of loan approvals increasing from 10 per cent in 1992 to over 30 per cent today.

Speaking to The Adviser, Digital Finance Analytics (DFA) principal Martin North said that its surveys have shown that around 34 per cent of refinanced stock is from the broker channel, while refinancing loan flow via the broker channel is currently sitting around 51 per cent for the year 2016 to date.

According to Mr North, the rise in refinancing in general is due to a number of factors: "The main driver is to reduce monthly payments (many households are finding it hard to cope with incomes stalling, when costs of living are rising, so anything to reduce repayments are welcomed), [and] many households believe rates are as low as they will go, so want to lock in to insure against future rises.

"In addition, you will see some are looking to withdraw capital (either for themselves, or to help their kids get into the market) … Finally, the advertising campaigns the lenders have run have educated households about refinancing, and they are more aware of the rate of interest than they were." 

The JP Morgan report, which also touched on data from DFA, said that the growing popularity of refinancing is particularly interesting due to the "emergence of re-financing as a driver of housing credit growth".

It reads: "Importantly, ‘growth’ in refinancing is highly correlated with growth in house prices — an increase in the proportion of refinancing approvals from ~10 per cent to ~20 per cent between 2000 and 2004 was accompanied by a ~80 per cent increase in Sydney house prices.

"More recently, an increase in the proportion of re-financing approvals from ~20 per cent to ~30 per cent between 2011 and today was accompanied by a ~50 per cent increase in Sydney house prices."

The report highlighted that when refinancing "~90 per cent of major banks customers are retained within the major banks market share". It found that one third remain with the same lender, while half refinance away to another major bank.

Further, DFA data showed that nearly two-thirds of regional bank borrowers are refinancing towards major banks, with non-banks holding poor attraction (with only 1 per cent of major bank and regional bank borrowers refinancing to a non-bank).

The JP Morgan report adds: "This indicates that by cutting price to drive market share (like CBA did earlier this year), major banks are simply poaching share off each other, which will most likely lead to a price-matching strategy by other major banks to retain share.

"This is important. If all major banks price rationally, then pricing stability should ensue across the incumbents – basically, major banks are their own worst enemy when they pull the price level."                                                                                  

[Related: Leading brokerage sees 30% rise in enquiries following RBA cut]