Refinances anticipated amid 4th rate hike

With inflation at 6.1 per cent in the June quarter, the RBA governor Dr Philip Lowe said the central bank was “committed to doing what is necessary” to bring back inflation to its target 2–3 per cent. But indicated it was not on a “pre-set path”.

The last time the cash rate was more than its current rate of 1.85 per cent, was in May 2016 when the cash rate was at 2 per cent.  

As the cash rate inches towards 2 per cent, yet again, aggregator Finsure has acknowledged the RBA has had little choice at the moment but to “go hard and keep hiking its cash rate”.

As the federal government prepares to unveil its economic budget in October, Finsure chief executive Simon Bednar said we could see a “circuit breaker” in the October cash rate, as the RBA pauses and reflects on its monthly interest rate increases.

“Perhaps in October we may see the central bank take a pause to reflect on the impact its rate hikes have had on reining in inflation,” Mr Bednar said.

“At least until then there is no escape for mortgage holders from monthly mortgage payments heading north.”

Just as the RBA has signalled that savings and housing equity have provided a financial buffer for many borrowers, Mr Bednar said most consumers seem to have been “well prepared for the significant tightening of monetary policy” since May.

Indeed, the rising interest rate environment has also seen a surge in demand for brokers and “brokers are also receiving more inquiries from mortgage holders about refinancing,” he said.

According to PEXA’s latest figures, refinances surged 29 per cent across the east coast of Australia – over the 2022 financial year.

Given the refinance expectations, executive director at Connective, Mark Haron, said it makes the role of the broker “more important than ever”. 

“With the more rate rises on the horizon, coupled with the sharp increase in the cost of living, we’re expecting demand for home loan refinancing to continue to grow – especially when you consider around one third of Australian households carry housing debt,” Mr Haron said.

“Connective members are currently seeing a spike in refinancing enquiries and, at the same time are proactively reaching out to their clients on fixed rate contracts which are set to expire over the coming months to offer their lending expertise.”

In this rising rate environment, Mr Haron said brokers are well placed to help mortgage holders reassess their loan contracts and provide them with the “right lending solutions” for their changing circumstances.

FBAA warns of ‘financial stress’

While many borrowers may turn to their brokers for refinancing support, the Finance Brokers Association of Australia has warned there can be a “hidden danger” with refinancing. 

The managing director of the Finance Brokers Association of Australia, Peter White, said “nothing is free” and “cheaper doesn’t always mean better”. 

“Banks will be looking to attract those considering refinancing as new customers, and will offer cheaper variable interest rates that are significantly below their fixed rates, which are rapidly climbing. This is a case of ‘buyer beware’,” Mr White said. 

“When banks offer cheap variable rates to new borrowers they are in fact disadvantaging their existing customer base, who are subsiding the new customers.”

Mr White urged borrowers not to focus solely on rate rise but to “carefully consider” all of the options offered by a lender including fixed rates, along with their specific needs and other factors.

Mr White has also warned many borrowers are not prepared for rising rates.

“We know from the research the FBAA conducted last year that many mortgage holders were not prepared for this and will now be under financial stress,” he said.

Borrowers unprepared 

Mortgage Choice CEO Anthony Waldron noted that more Australians are concerned about rising interest rates, citing a recent survey of 1,000 borrowers. 

The survey, commissioned in March, found 48 per cent of respondents were concerned about interest rate rises, which went up to 56 per cent in June. 

“While concern is understandable, it’s important to put this cycle of rate hikes into context. For the last few years, borrowers have had access to the lowest rates on record. We knew that rates would start to normalise at some point, and the current hikes will stabilise eventually,” Mr Waldron said.

“Mortgage Choice home loan submission data shows that many borrowers are being proactive with their home loans, seeking more competitive home loans by switching to new lenders.”

The aggregator’s latest data showed 42 per cent of borrowers opted to refinance their home loans over July. 

Mr Waldron noted that what the refinancing data doesn’t show, however, is the proportion of borrowers whose brokers have been able to negotiate a better rate with their existing lender.   

“Our data also shows that the overwhelming majority of borrowers are willing to ride the variable rate wave, with only 5 per cent of loans submitted by our broker network having a fixed component over July,” said Mr Waldron.

Client retention more important

With buyers’ borrowing capacities stretched, Loan Market said client and referrer education will also become a “further focus” for brokers. 

Managing director Andrea McNaughton said brokers were reminding clients to confirm their pre-approval status with their lender prior to placing an offer or bidding at auction. 

“The goalposts are now shifting every month for borrowers and they need to be certain that their pre-approval is still valid,” Ms McNaughton said.

Given Loan Market’s pre-approval volumes were up 134 per cent at the end of the financial year, she said there was a “huge amount” of borrowers still interested in real estate.

“Brokers are making sure their clients have confirmation of their pre-approval status as the cash rate rises, and that will be part of broker-client communications for the remainder of this current rates cycle,” Ms McNaughton said.

“Many brokers are also reporting that clients are reviewing the capital gains they’ve made, especially since the pandemic, and with rising interest rates, are looking to capitalise on the growth and sell.”

Ms McNaughton said the relationships between brokers and referrers – in particular real estate agents – had also come into focus amid the changing interest rate environment.

“Brokers have the relationships with buyers, and when there are more properties coming to the market, it’s important for real estate agents to table offers with their vendors which can transact,” Ms McNaughton said.

Brokers expect cash rate to hit 2.6% by Feb 

Given the RBA’s fast pace in increasing the cash rate, brokers expect the cash rate to hit 2.6 per cent by February next year, according to survey platform Hashching.

The data found the majority of brokers (65 per cent) predicted a terminal cash rate of 2.6 per cent by February next year and 40 per cent expected the discounted mortgage rate for owner-occupier borrowers would continue to sit between 3 and 4 per cent by the end of 2022. 

With raising interest rates starting to put the brakes on the NSW and Victoria housing markets, Hashching CEO Arun Maharaj said there was solid opinion that brokers will be dealing with discounted mortgage rates – above 4 per cent – by the end of this calendar year. 

The August Hashching broker survey also revealed 40 per cent of brokers questioned felt the RBA “did not do a good job of navigating the nation” through the pandemic, with a further 30 per cent stating they were unsure.

[Related: RBA tackles inflation with whopping rate hike]