Borrower hesitance to refinance presents opportunity for brokers
Despite the rising rate environment and mortgages being most households’ largest expense, more than half of borrowers have indicated they’d prefer to avoid switching providers.
In a new survey of 1,000 borrowers, commissioned by Mortgage Choice and undertaken by Honeycomb Strategy, 60 per cent of consumers identified refinancing as a “hassle” they’d like to avoid.
Further, 61 per cent said they are “cautious about refinancing” in case they end up worse off.
However, the vast majority of respondents (80 per cent) said their home loan was their largest monthly expense.
On Tuesday (7 June), the Reserve Bank of Australia (RBA) raised the cash rate by 50 bps to 0.85 per cent – opting for an increase beyond what most economists had expected.
But RBA governor Philip Lowe has signalled that June rise was the second of a series to come, with the size and timing of future rate rises to be guided by data around inflation and the labour market.
A number of the major banks have already predicted that the RBA will mirror the June rise at its next monetary policy meeting in July – hitting Australians with a double whammy 50-bp rise.
Mortgage Choice national sales director David Zammit commented that with interest rates expected to rise several more times this year, borrowers should speak to brokers about reviewing their home loan.
However, the new survey has indicated that only 24 per cent of borrowers feel confident navigating the refinancing of a home loan.
But 60 per cent had also agreed that brokers can get the best deals on home loans. For borrowers who had used a broker previously, the proportion of those who agreed that brokers can secure the best deals rose to three-quarters (75 per cent).
“Many borrowers save hundred or even thousands of dollars a year by switching,” Mr Zammit said.
“There can be many benefits to refinancing, including accessing a better home loan interest rate and lowering your repayments. You may also be able to secure a cash back deal or consolidate existing debts.”
He added that refinancing could be a path of investing, as PropTrack data has shown home prices have risen by 35 per cent nationally since the onset of the pandemic.
“If your property has increased in value in the last few years, you might be able to access your equity to fund a renovation, or to invest,” Mr Zammit said.
Many borrowers have taken advantage of low fixed rates in recent years, with the Reserve Bank of Australia’s (RBA) financial stability review for April showing that in late 2021, almost 40 per cent of outstanding home loans had fixed interest rates.
Over 80 per cent of those fixed-rate loans are due to expire in the next two years, with the borrowers to face an increase in repayments.
“Refinancing can feel daunting,” Mr Zammit said.
“However, it’s important people know that with the right advice from an experienced mortgage broker. The worst thing that can happen is that you find out you’re already on the best rate for your situation, and you stick with that.”
In May, NAB chief executive Ross McEwan stated that the major bank expects customers to start shopping around, as rates keep lifting.
At the time, he expected the cash rate to keep rising to around 2.35 to 2.85 per cent.
“We need to be ready for that and we are, for customers looking at their optionality, particularly as they’re coming off a fixed rate and [they’ll say] ‘where do I go to next?’” Mr McEwan told investors at the bank’s half-year results briefing.
“That’s something certainly in our mindset here to be all over. It’s going to be a competitive marketplace going forward, there are 160 players in this market at the moment.”
[Related: RBA rolls out bumper cash rate rise]
