Refinancing activity peaks as interest rates soar

Growth offsets decline in new loans, says PEXA

Refinancing activity peaks as interest rates soar



Refinances have surged to record levels in Australia as homeowners feel the pinch of consecutive interest rate hikes, according to a new report from PEXA.

In 2022, more than 378,000 refinances were recorded in NSW, Victoria, Queensland and Western Australia, which is an 11.4% increase from the previous year.

However, as refinancing activity peaked in 2022, PEXA new loans taken out to fund the purchase of a property decreased 12.8% from 2021 levels, with just over 502,000 new loans across the four states.

Mike Gill (pictured above left), PEXA’s head of research, said the latest PEXA Mortgage Insights Report reveals how the 2022 refinance market was driven by homeowners seeking a better deal on their mortgage.

“This growth in refinances partially offset the declines in new loans, a trend that reflects lower property settlement levels as sales come-off pandemic era record highs,” Gill said.

“Interest in mortgage refinancing was widespread and active in all markets, as mortgagees responded to rapidly rising interest rates immediately (and in some cases pre-emptively) by seeking out cheaper loan arrangements,” said Julie Toth (pictured above right), PEXA’s chief economist. “This trend accelerated through 2022, as the Reserve Bank of Australia’s rate rises flowed through into variable loans in full.”

The PEXA report also revealed that Victoria led the country in volume of residential lending refinances, with over 134,000 refinances completed in 2022. This is a 7.7% increase from the previous year.

Meanwhile, NSW had the highest average residential loan amounts at $841,539, well ahead of Victoria’s average of $629,900 and Queensland’s $521,085.

NSW also had the highest average loan-to-value ratio (LVR) at 77.1%, followed by Victoria with 76.9% and Queensland with 76.8.

As for commercial lending, the greatest volume of activity was recorded in Victoria, with over 6,400 new commercial loans in 2022. Queensland saw the highest growth in commercial lending at 11.4% more loans compared to the previous year, while postcode 2000 in Sydney had the highest volume of new commercial loans with 313 new loans recorded.

“In 2022, new residential loan volumes fell back from 2021's record highs in all three of Australia's largest markets, but remained above pre-COVID levels,” said Toth. “This reflects an immediate demand-side reaction from home buyers to the deliberate dampening effect of increasing interest rates during 2022 and to the peak in home pricing in most locations in this cycle.” 

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