Swa Rath is smiling all the way to the bank.
- The value of loans being refinanced in April was more than 50pc higher than a year earlier
- Some borrowers are saving thousands of dollars a year in reduced repayments
- But not all borrowers are able to get a new loan as falling house prices and rising unemployment make lenders more cautious about who they lend to
She just saved thousands of dollars a year on her two mortgages by taking advantage of competition between home loan lenders who are keen to lock in customers as the country buckles down for a recession.
Ms Rath has an investment property in South Melbourne and a second mortgage for the home where she lives, in Sydney’s inner-west suburb of Ashfield.
Until recently, both mortgages were with separate lenders.
“We started to explore options [to refinance] in November or December last year, but only finalised things in the last month,” she told The Business.
The timing worked in her favour.
After she began looking to refinance, the Reserve Bank, in its efforts to ward off the worst of the economic crisis unfolding from the COVID-19 pandemic, dropped the official cash rate from 0.75 per cent to the record low rate of 0.25 per cent.
It meant banks were also dropping their rates.
In the end she saved 1.2 per cent off her investment loan and 0.2 per cent off her owner-occupier home loan.
“Which is a massive drop, so definitely the rate was a big motivation for me to shift over and go through the whole process,” she said.
The new deal was also sweetened with a $4,000 rebate from her new lender.
“Which also definitely helped boost the savings,” she said.
‘Rate war’ expected to intensify
Smartmove mortgage adviser Michael Letts said banks were working hard to attract new, and keep existing, customers.
Refinancing would normally make up about 30 per cent of Mr Letts and his colleagues’ workload but, in the past few months, he said it had made up about 70 per cent of his work.
“Typically, if you’re at one bank, to move across you’re looking at about $700 or $800 by the time you factor in registration costs and their processing fees. So with that $4,000 rebate you’re still ahead,” he explained.
Australian Bureau of Statistics data shows the number of people refinancing their home loan rose 11 per cent from March to April and the values of those loans rose 50.9 per cent year-on-year to $7.9 billion in just one month.
It was a different story for new mortgages, which were down 4.8 per cent in April.
Comparison website RateCity.com.au research director Sally Tindall said borrowers were currently the ones with the power.
“Australians are increasingly starting to realise they have to act on their mortgage if they want to save money,” she said.
“We expect this rate war to intensify, despite the fact mortgage rates are already at record lows.”
Falling house prices keep lid on new loans
This week’s unemployment data from the ABS is forecast to show an increase in the jobless rate, with Treasury now expecting it to top out at about 8 per cent this year.
“That would be a negative for dwelling prices and it would mean that we would see dwelling prices being soft or falling over that time period,” property analyst and founder of SQM Research Louis Christopher said.
A higher unemployment rate is a big driver to push down property prices.
“The reality is, if you have many, many thousands of working adults not being able to find a job, that’s many, many thousands of would-be-buyers who cannot buy,” Mr Christopher told The Business.
UBS and CBA both predict house prices will fall between 5 and 10 per cent this year.
“We would then expect prices to gradually start rising as the unemployment rate begins to decline,” CBA senior economist Gareth Aird said in a recent note.
Another big factor that will see property prices slide further is closed international borders.
New dwellings that were being built to keep up with yearly population growth will sit empty without net migration.
That lack of demand will further lower prices.
Home buyers getting interested
As the COVID-19 curve flattens, confidence is returning and interest in the property market is growing.
Visits to realestate.com.au have doubled since a March low.
“It looks like people have become a little bit more serious about being prepared to buy or sell real estate,” REA Group’s head of economic research Cameron Kusher said.
“But we’re still not seeing too much activity in the transaction numbers.”
But if property prices continue to fall, even people like Ms Rath who are locking in a better home loan rate might still feel the heat from the declining value of their real estate.
For now, though, she considers herself one of the lucky ones, entering the first recession in a generation with a lower interest rate.
“I think I’ve had it really, really good,” she said.
“I’m very lucky and I wish other people were in a similar situation.”