Refinancing could hit record highs this year following yesterday’s cash rate rise and with another widely predicted in March.
PEXA’S Refinance Index continues to show strong levels of mortgage refinancing activity after a seasonal lull in early January.
And with more than 800,000 fixed-rate home loans due to roll onto variable rates in 2023, the purse strings could get significantly tighter for homeowners.
The Refinance Index for the week ending February 7 hit 172.5 per cent, which was up 16 per cent on the same week last year, but 1.3 per cent down on the last week in January in seasonally adjusted terms.
PEXA Chief Economist Julie Toth said the RBA’s decision to raise the cash rate to 3.35 per cent brought the current series of hikes to 325 basis points in less than a year.
“This is the largest and fastest rate rise ever implemented by the RBA,” she said.
“The relatively direct transmission of interest rate rises to variable mortgage rates will continue to take ever larger chunks of income away from mortgage-bearing households through 2023.
“Refinancing and loan renegotiation activity is likely to remain elevated, as mortgagees seek to reduce their mortgage costs.”
Ms Toth said a growing number of fixed-rate mortgage holders were rolling off their loans into a sharp increase in costs.
It comes after the RBA last week estimated about one-third of housing credit was fixed-rate, which equated to more than 800,000 loans.
“All of these loans will reset at a higher cost,” she said.
“Among both variable-rate and fixed-rate mortgagees, these rate rises are disproportionately affecting middle-income suburban mortgage-holders who purchased their home (or an investment property) during the past three years of record-high housing prices and record-low interest rates.
“More recent mortgagees tend to have larger mortgages and higher mortgage costs relative to their incomes, compared to home-owners with older loans.
“With property prices receding from their recent record peaks in many suburbs, increasing numbers of mortgagees will face higher mortgage-to-valuation ratios on their home.”
Ms Toth said the change in valuation ratios would affect the way those mortgage holders responded to rising rates, and could see them refinance or sell their property.
“At its worst, this situation can push mortgage-holders into reluctant sales, negative equity, so-called ‘mortgage prison’ or financial stress,” she said.
