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External refinancing soars as first home buyers drop like flies

External refinancing soars as first home buyers drop like flies

The value of external refinancing has hit another high in the month of July as mortgage holders chase better home loan rates.

New home lending, however, has slowed from its previous record highs, with the number of first home buyers dropping sharply (see section below).

External refinancing

A total of $17.22 billion in mortgages were refinanced in the month of July, according to the ABS Lending Indicators released today. This was an increase of $978 million (6.0%) from the previous month, in seasonally-adjusted terms.

Refinancing has been on the rise since the cash rate cuts of 2019. However, the trend has accelerated in recent months as customers move to lock in low rates in case they rise.

Value of externally refinanced loans in July

Amount in July 2021Monthly changeYear-on-year changeChange from 2 years ago

$17.22 billion

– highest ever

$978 million

6%

$6.45 billion

60%

$8.71 billion

102%

Source: ABS Lending Indicators July 2021, released 2 September 2021, seasonally adjusted data. Annual change is July 2020 to July 2021, and 2-year change is July 2019 to July 2021.

A new dataset released from the ABS today shows the proportion of fixed rate loans has increased from 15.5 per cent in July 2019, to 47.1 per cent in July 2021.

The popularity of fixed rates has been on the rise since the big four banks slashed their fixed rates in response to the emergency cash rate cut on 19 March 2020.

RateCity.com.au research director, Sally Tindall, said the record high in refinancing comes on the back of some notable hikes to fixed rates, particularly among 4- and 5-year terms.

“The recent spike in refinancing is likely to be driven, at least in part, by a fear of missing out on a good rate,” she said.

“We expect this surge in refinancing to continue as mortgage holders in lockdown use this time at home to give their finances a spring clean.

“According to the RBA, the average existing owner-occupier on a variable rate loan is paying 3.07 per cent, yet there are currently 181 mortgage rates on offer under 2 per cent.

“If your mortgage rate starts with a ‘3’, it could be time to jump on the refinancing bandwagon or at least pick up the phone and haggle with your current lender,” she said.

New lending

The value of new loans from owner-occupiers dropped for the second month in a row, down 0.4 per cent or $89 million from the previous month, in seasonally-adjusted terms.

The drop in owner-occupier loans was offset by the continued rise in investor lending for the ninth consecutive month. The value of investor loans hit $9.35 billion in July, a rise of 1.8 per cent from June and the highest level since April 2015.

First home buyers continued their exit from the overheated property market. The value of loans to owner-occupier first home buyers was down $1.23 billion from the January peak, in seasonally-adjusted terms.

Value of new home loans approved in July

AmountMonthly changeYear-on-year change
TOTAL

$32.12 billion 

$75 million

0.2%

$13.03 billion

68.2%

Owner-occupier

$22.77 billion

-$89 million

-0.4%

$8.38 billion

58.3%

Investor

$9.35 billion 
highest since April 2015

$164 million

1.8%

$4.64 billion

98.7 %

Source: ABS Lending Indicators July 2021, released 2 September 2021, excludes refinancing, seasonally adjusted data. Monthly change is June 2021 to July 2021, and annual change is July 2020 to July 2021.

Owner-occupier first home buyers

AmountMonthly changeChange since peak

(Jan 2021)

Value of loans

$5.84 billion

-$481 million

-7.6%

-$1.23 billion

-17.4%

Number of loans

12,930

-939

-6.8%

-3,327

-20.5%

Source: ABS Lending Indicators July 2021, released 2 September 2021, excludes refinancing, seasonally adjusted data.

Ms Tindall said investors continued to elbow out owner-occupiers in July, particularly those looking for their first home.

“The sharp decline in first home buyers is concerning. They’re dropping out of heated auctions in droves, as bidding wars surge beyond their budgets,” she said.

“It’s hard to see when first home buyers will make a comeback in this climate.

“While growth in property prices is starting to slow, the asking prices are still too high for many Australians trying to get their first foot on the property ladder,” she said.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

Do first-time home loan applicants qualify for tax benefits?

If you’re a first-time homebuyer applying for a home loan, you could qualify for some tax deductions, but only if your property is a source of income for you. For instance, if you rent out the property, you could get tax deductions on the cost of constructing or renovating it, the loss in value of depreciating assets such as furniture or electrical fixtures, and the home loan interest. 

Homeowners using their property as a residence could also get a tax deduction if a part or all of it is used for business. These deductions include tax write-offs for depreciating assets and deductions for operating expenses like utilities’ payments and service charges for phones and the internet. However, people running businesses from their residences don’t qualify for a tax deduction on the interest paid on their home loans.

Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

Can I get a NAB first home loan?

The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.

Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.

If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.

The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.

Where can I get all the information about an ANZ first home buyer’s loan?

As a first home buyer, you may require help and hand-holding, and as such ANZ has the buying your first home section on its website full of important information. ANZ also has a form in this section you can fill out to get a free consultation from an ANZ First Home Coach and create your own plan for buying your first home. This coach will help you understand where your current income is being spent and plan for your home loan repayments. You’ll get a clear picture of the costs involved in purchasing a property and how to budget or save for these costs. The coach will help you understand different deposit options and manage your accounts to enhance your savings.

There are three types of ANZ first home loans - Standard Variable, Fixed, and Equity Manager. The features, interest rates, and terms for each are different, and you can compare them here.

When they apply for an ANZ home loan, first home buyers can also get guidance on applying for the First Home Owner Grant (FHOG). This is a one-off government grant that may be available to you when you’re buying your first home. The eligibility criteria for FHOG differs between the different states and territories, which is why it’s helpful to have expert advice when applying.

How can I apply for a first home buyers loan with Commonwealth Bank?

Getting a home loan requires planning and research. If you are considering a home loan with the Commonwealth Bank, you can find the information you need in the buying your first home section of the bank’s website.

You can see the steps you should take before applying for the loan and use the calculators to work out how much you can borrow, what your monthly repayments would be and the upfront costs you’d likely pay.

You can also book a time with a Commonwealth first home loan specialist by calling 13 2221.

CommBank publishes a property report that may help you understand the real estate market. The bank has also created a CommBank Property App that you can use to search for property.  The link to download this app is available on the same webpage.

If you are eligible for the First Home Loan Deposit Scheme, CommBank will help you process your application. The scheme helps first home buyers to purchase a home with a low deposit. You can read details about this scheme here and speak with a CommBank home lending specialist to understand your options.

What does unconditional approval from Aussie Home Loans mean for first time home buyers?

As an Aussie home loan first time home buyer, your loan application passes through multiple stages. Early in the process, you’ll receive conditional approval, which means the lender approves your loan application as long as you meet certain conditions. Some of these criteria include selling another property or repaying existing debt.

The next stage is unconditional approval which is the final decision from the lender. After considering all the relevant information, the lender is willing to offer you a certain amount to buy a specific property.

Unconditional approval is also known as formal or full approval but receiving this doesn’t mean you need to accept the money. If you choose to proceed and accept the funds, you’ll sign the loan documents to finalise the loan and receive the money. You can, at this time, clarify any doubts you have with your Aussie broker.

You’re likely to get conditional approval, sometimes called pre-approval, when you want to get clear on your budget. You’ll then apply for unconditional or formal approval once you’ve found a property and made an offer. This process will involve the lender reviewing your finances and the details of the property you wish to purchase to make sure you can repay a loan on that property.

As a first time buyer, it may help you with the purchasing process to seek pre-approval or conditional approval. This may speed up the final purchasing process and help you through the home loan process in steps rather than all at once.

Is a second mortgage tax deductible?

If you take out a loan to invest in a property, you can claim a tax deduction on the interest you pay as long as the property is earning income. In other words, if you rent the property for the entire year, you can claim a tax deduction for 12 months of interest payments. But, if you use the home for six months and rent it for the other six months, you can claim deduction only for 50 per cent of the interest amount.

You also get tax benefits for items that lose value over the years. But, the entire amount is not allowed as a tax deduction in the same year; instead you’ll have to claim a portion each year over a number of years. 

Additional borrowing costs, such as maintenance fees, stamp duty, offset account setting up fees, Lenders Mortgage Insurance (LMI), and establishment fees, can also be claimed as tax deductions.

Before you claim second mortgage tax deductions, it’s often worth checking with an experienced tax expert.

How do I apply for Westpac’s first home buyer loan?

If you’re a first home buyer looking to apply for a home loan with Westpac, they offer an online home loan application. They suggest the application can be completed in about 20 minutes. Based on the information you provide, Westpac will advise you the amount you can borrow and the costs associated with any possible home loan. 

You can use Westpac’s online mortgage calculators to estimate your borrowing power. You can also work out the time it might take to save up for the deposit, and the size of your home loan repayments

When applying for a home loan with Westpac, you’re assigned a home finance manager who can address your concerns and provide information. The manager will also offer guidance on any government grants you may be eligible for. 

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.