Fixed-rate mortgage activity lifts: AFG

The data, which revealed the home loan activity behaviours of its 3,200+ broker network, has shown that the share of borrowers choosing fixed-rate loans increased to 5.6 per cent, from 4.8 per cent in the December 2022 quarter and the record-low of 3.6 per cent before that.

As such fixed-rate activity for the financial year so far has been at its lowest level since AFG began reporting these figures. But it is beginning to increase as lenders begin to review their fixed-rate loan options.

AFG chief executive David Bailey said this was the second consecutive quarter they have ticked up, albeit “well below long-term averages”, with fixed-rate volumes around 34.0 per cent at the beginning of 2022.

The data comes as non-bank lender Pepper Money launches a two-year home loan product that enables owner-occupier and investor borrowers to fix their interest rate with no break costs.

The fixed-rate mortgage enables borrowers to break their fixed term without penalty should interest rates drop.

The AFG results also showed there was a 3.3 per cent drop in the number of mortgages lodged for the third quarter — falling to 32,444, which marked an 11.67 per cent drop over the corresponding period last year.

“One positive outcome from the slowing market has been an improvement in lender turnaround times, with the average number of days from the submission of a loan application by an AFG broker to formal approval dropping from 17.9 to 17.7 days,” he said.

Banks grab loan book market share

Despite the number of mortgages lodged falling overall, major lenders have once again taken market share from their non-major rivals, with more than 60 per cent of AFG mortgages lodged with the big four banks in 3Q23.

Given the extraordinary competition between the major banks for market share, with cashbacks offers on the rise for new customers and pricing below cost in some cases, the report found major lender lodgements were up 2.2 per cent to 61.8 per cent — the highest level since the final quarter of 2020.

“This has been fuelled by the majors continuing to benefit from lower funding costs linked to the government’s term funding facility, a lag in passing on deposit rate increases to customers, and the prevalence of sub-economic cashback offers,” Mr Bailey said.

“The major banks’ customers often pay a ‘loyalty tax’ as lenders chase new customers with better rates and cashback offers, usually at the expense of their existing customers.

“This will encourage customers to shop around; however, with competition in the home loan market continuing to be the domain of the major lenders, the restoration of an even playing field for non-major lenders is vital to ensure alternative lending options.”

However, refinancing remained steady at 31 per cent and upgrader loans were down 1 per cent to 38 per cent.

The data also reiterated the findings from the Mortgage and Finance Association of Australia’s (MFAA) latest Industry Intelligence Service (IIS) report, which recently revealed major bank market share grew by 6.0 percentage points in the September 2022 quarter, up from 41.2 per cent on the June 2022 quarter to 47.2 per cent.

Average loan size falls

In line with the home values decreasing over the past 10 consecutive months, with the exception of March, the average loan size dropped from $600,149 to $598,258 for the quarter at AFG.

In addition, the national loan-to-value ratio was up from 65.4 per cent to 65.7 per cent.

Mortgage lodgement dropped across the country, with drops in NSW the hardest hit, down 15.4 per cent on the same period last year. Queensland was 11.6 per cent down, Victoria 10.5 per cent below, and Western Australia recorded a drop of 10.1 per cent on last year’s levels. South Australia fared better with a drop of only 0.4 per cent.

“Investors continued to dip their toe back into the market, with investment lodgements up 1 per cent to 28 per cent,” the AFG CEO said.

In addition, despite the Australian Bureau of Statistics’ (ABS) latest data for February 2023 revealing the number of new owner-occupier first home buyer (FHB) loan commitments fell 3.5 per cent in February 2023, FHBs represented 12 per cent of loan volume in AFG’s 3Q22 lodgements, a 1 per cent increase on the previous quarter.

Mr Bailey said the uptick in FHBs was a reflection of full employment still underwriting demand for home equity.

[Related: Pepper Money waives break costs for 2-year fixed rate loans]