Lendi Group: Refinance activity booming as fixed rate cliff approaches

Lendi Group data shows Australians are refinancing at rapid speed, as the RBA moves to lift rates for a ninth consecutive month.

In December 2022, 76% more Australians refinanced than those who took out a new home loan. It is the same trend seen over the last three months, with refinancing accounting for 88% of Lendi’s mortgage activity during that period.

Of those who refinanced over the past quarter to December 2022, NSW accounted for the largest portion at 48%, followed by WA at 22%, QLD at 15% and VIC at 12%.

Over the same period, the 35-44 year-old age group took out the largest proportion of refinances at 34%; followed by 45-54 year olds at 25% and 25-34 year-olds at 18%.

The refinancing boom comes as thousands of Australian households prepare for their fixed-rate term to expire in 2023, with $130 billion fixed rate mortgages to revert to a standard variable rate in the next six months.

Lendi Group CEO Dave Hyman said, “Typically, 20-25% of loans are fixed, but cheap rates through the pandemic created a rare period in which fixed rate borrowing ballooned, with total housing lending and refinancing on fixed interest rates peaking at 46% in July 2021.

“By mid-2023, copious fixed rate mortgages secured during the pandemic will have reverted to a standard variable rate and borrowers who took out these loans are likely to be facing much higher mortgage payments.

“The higher interest rates go, the more intimidating it becomes for people peeking over the edge of the mortgage cliff, staring at a growing gulf between what they’re paying now and what they’re looking at paying in a few months’ time.”

“Based on current market rates, the revert rate for the majority of these mortgage holders will be approximately 6%, which is 1% higher than the buffer banks used to assess borrowing capacity during the pandemic.”

“It means a significant portion of homeowners will see all their disposable income swallowed through the RBA rate rises. Pair this with rapidly declining housing prices and shrinking equities and many homeowners are being left facing mortgage prison.”

Dave Hyman said borrowers need to take proactive, early steps to protect themselves from revert rate shock.

“Reaching out to an expert broker at least 90-days before a fixed term ends will leave borrowers in the best position to tackle the coming challenges and find a loan solution which best suits them and their family.

“If you know your fixed term is ending and you think you could be locked in mortgage prison, speak to your broker as soon as possible. There are steps homeowners in all situations can take to qualify for a better rate.

“Often a solution can be found before borrowers have to fork out the first revert rate monthly repayment, which take a significant chunk of the household budget.”

Lendi’s top tips to avoid facing into a fixed rate mortgage cliff include:  

 1: Get ready:  Be proactive about your home loan when your fixed term is ending.

“You’re not get the most competitive deal available to you if you let your loan roll onto to your lender’s revert rate.”

“More and more we’re seeing lenders often charge existing borrowers a ‘loyalty tax’ – that is, a higher interest rate than what new borrowers receive.”

2: Don’t tackle it alone: reach to an expert for help. 

“The mortgage market can be increasingly complex during times of rising interest rates.”

“Chat to a home loan specialist or mortgage broker before your fixed rate term ends – we recommend this conversation happens at least 90 days prior so there is time to prepare everything you need to achieve the best rate possible when your fixed rate term ends.”

3:  Review your household budget – in advance
“Waiting until you get the notice from your lender of your new repayments could really throw your budget off track and place your finances and family under unnecessary pressure.”

“Knowing when your fixed rates end and check in on your household budget well before your that time is up so you know where you can save money as your home loan repayments start to go up.

“If you can’t find room in your budget, speak to your lender early or call on a mortgage expert earlier rather than later – often the situation can be avoided before you have to pay the first dreaded revert rate monthly repayment.”