NSW mortgage refinancers rush back to the big banks during COVID-19

NSW mortgage refinancers rush back to the big banks during COVID-19

Refinancers in NSW have flocked to the big four banks, as the uncertainty of COVID-19 weighs on mortgage holders’ financial decisions, new data showed. 

More than two thirds of all refinancing activity in NSW was dominated by the major banks in August 2020, surging by almost 15 percentage points compared with the same month last year, according to the NSW Land Registry Services’ (NSW LRS) Residential Mortgage Activity Report.

That has helped the big four banks gain ground, winning 5,195 – or about 48 per cent more – refinances from competitors than what they had in August 2019. 

Mortgage refinancing activity has jumped since May 2020, Jerry Goldfried, NSW Land Registry Services’ director of analytics and insights, said.

“Refinancing activity surged in May and has continued through June and July,” he said.

“This is interesting to note during a period when many mortgage-holders are applying for payment deferrals.”

NSW borrowers had been switching from the big four banks to the non-majors, including non-bank lenders, in droves in the past year until COVID-19, the NSW LRD research found.

However, the game began to change after the pandemic hit, with ANZ, CBA, NAB and Westpac seizing back the share of refinancing customers. 

The surge in refinancing has been sufficient to outweigh the fall in new mortgages recorded in the COVID-19 period, Westpac’s senior economist Matthew Hassan wrote

“Reports indicate that a large part of this flow relates to the take-up of fixed rate loans – rates on 3-year fixed owner occupier loans are just 2.35 per cent compared to an average discounted standard variable rate loan of 3.65 per cent,” he wrote.

“If so, and if the wider lending market is moving towards fixed rates, this could have major implications for how rate moves are influencing the housing market and potentially providing more support to house prices.”

Refinancing to non-major lenders decline in NSW

Meanwhile, refinancing activity in NSW with non-bank lenders, other domestic banks, foreign authorised deposit-taking institutions (ADIs, or banks) and customer-owned banks fell.

“NSW LRS data also shows a trend away from non-ADI mortgage lenders, who previously had been experiencing market share growth from new and refinanced mortgages prior to COVID-19,” Mr Goldfried said.

“There is also a clear trend in refinancing away from foreign ADIs and non-ADI mortgage lenders.”

As few as 346 mortgage holders in NSW switched to non-bank lenders in August 2020, which lost 49 per cent of refinancing business compared to the same month last year.

Big four take back their slice of the pie

The major banks recorded the most significant boost to their home loan books in the year to August 2020, recovering their slice of the pie. The big four banks’ total mortgage volume over the month, including new and refinanced mortgages, shot up by some 19 per cent in NSW compared with August 2019. This was largely thanks to refinancing activity, rather than new home loan business.

Aside from the major banks, customer-owned banks (or mutuals) and other domestic banks recorded growth in overall mortgage activity in NSW over the year, up by about 10 per cent and 3 per cent respectively.

Other domestic banks and foreign authorised deposit-taking institutions (ADIs, or banks) lost the biggest share of their NSW business to competitors, with 33 and 30 per cent of customers refinancing to another lender respectively. 

New mortgage activity less noticeable

COVID-19 has also had an impact on new mortgages that were not switches from other lenders, though it was not as substantial as refinancing.

The major banks accounted for just over 67 per cent of new mortgages in August 2020, which edged up slightly by nearly 2 percentage points since August 2019. This pushed up the big banks’ new mortgage business by about 5 per cent compared with the same month last year.

But it was other domestic banks and customer-owned banks which saw double-digit growth in their new mortgage business, up by 17 per cent and 17.5 per cent respectively since August 2019.

Non-bank lenders recorded a 29 per cent drop in new mortgage holders taking out a loan with them.

Nationally, borrowers committed to about $19 billion in new home loans, representing an almost 9 per cent jump in July 2020, fresh figures from the Australian Bureau of Statistics (ABS) showed.

Big four banks – lowest rates

Lender Advertised variable Advertised

2-yr fixed


3-yr fixed

CBA 2.79% 2.29% 2.29%
Westpac* 2.69% 2.19% 2.19%
NAB 2.69% 2.19% 2.29%
ANZ 2.72% 2.29% 2.29%

Source: RateCity.com.au.

Note: Rates are for owner occupiers paying principal and interest. *Westpac’s rates are for customers with a loan-to-value ratio of less than 70 per cent. Data accurate at time of publishing.

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e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

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How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

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What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

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.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

What is mortgage stress?

Mortgage stress is when you don’t have enough income to comfortably meet your monthly mortgage repayments and maintain your lifestyle. Many experts believe that mortgage stress starts when you are spending 30 per cent or more of your pre-tax income on mortgage repayments.

Mortgage stress can lead to people defaulting on their loans which can have serious long term repercussions.

The best way to avoid mortgage stress is to include at least a 2 – 3 per cent buffer in your estimated monthly repayments. If you could still make your monthly repayments comfortably at a rate of up to 8 or 9 per cent then you should be in good position to meet your obligations. If you think that a rate rise would leave you at a risk of defaulting on your loan, consider borrowing less money.

If you do find yourself in mortgage stress, talk to your bank about ways to potentially reduce your mortgage burden. Contacting a financial counsellor can also be a good idea. You can locate a free counselling service in your state by calling the national hotline: 1800 007 007 or visiting www.financialcounsellingaustralia.org.au.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

What do mortgage brokers do?

Mortgage brokers are finance professionals who help borrowers organise home loans with lenders. As such, they act as middlemen between borrowers and lenders.

While bank staff recommend home loan products only from their own employer, brokers are independent, so they can recommend products from a range of institutions.

Brokers need to be accredited with a particular lender to be able to work with that lender. A typical broker will be accredited with anywhere from 10 to 30 lenders – the big four banks, as well as a range of smaller banks, credit unions and non-bank lenders.

As a general rule, brokers don’t charge consumers for their services; instead, they receive commissions from lenders whenever they place a borrower with that institution.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.