Rising rates begin to bite

(ASX:AFG) Australian homebuyers are on alert and contacting their brokers to counter rising interest rates, according to the latest AFG Index.

AFG CEO David Bailey said the company’s data across the past three months shows the volume of refinancers is up from 24% to 29% as borrowers look to get ahead of interest rate increases. Rapidly rising interest rates have also deterred first time borrowers.

“The RBA has made its move and lenders have followed suit. The canary in the coalmine may well be First Home Buyers, already down to 11% of the market, their lowest level for five years. The central bank needs to be careful it doesn’t pull too hard on the interest rate lever as data plays catch up with market activity,” he said.

“Interestingly, the national Loan to Value (LVR) Ratio at 65.4 %, is the lowest we have seen.

As the 2022 financial year drew to a close AFG brokers lodged $22.5 billion in home loan applications, an increase of 2.54% on last quarter. Looking at year on year activity, application volumes are 0.47% down on the corresponding quarter last year. NSW recorded the biggest fall from the corresponding quarter last year, down 6.33%.

“Once again, the support Australian mortgage brokers provide to their customers is clear as they help their customers navigate the changing lending market and ensure a competitive market.

“Borrowers have deserted fixed rates, down from 20% to 7.7% and highs of 38% during the pandemic, as banks continue to price in anticipated future rates rises. “The country’s major lenders appear for now to be holding off on a desire to drive more margin into the loan book in their search for book growth,” he said.

“When you contemplate their funding task to replace the cheap Term Funding Facility over the next few years, it would not be a surprise to see some pressure on passing on more than the standard RBA cash rate increases.

“The Big 4 Banks and their stable of brands have lifted 5.1% on the previous quarter. ANZ was up 2.18%, CBA group up 0.41%, NAB down 0.25% even with the addition of UBank and the takeover of 86400 from Q2 FY22. The Westpac group made the biggest strides, up 3.24%.

“Among the non-majors, ING is down almost 2%, halving their market share. Macquarie down 1.31% but Suncorp continuing to perform strongly up 0.06% to 3.73%.

“Following on from the recent demise of Volt and the swallowing up of 86400 and Citibank* by NAB, the proposed acquisition of Suncorp’s banking arm by ANZ will further cement the importance of brokers to keep the market competitive.

The Big 4 Banks and their associated brands are ahead across the country, with Queensland the only state to have the non-majors in front, at 52.44%.

The quarter also saw further improvement in lender turnaround times, down from 21.9 days last quarter to 19.8 days for formal approval to be reached.

“In a rising interest rate environment, the role of a mortgage broker has never been more important. The market is competitive and with a new round of cash-back offers starting to appear it makes sense that customers will continue to recognise that their broker is best placed to know what options are available to help them,” he concluded.

Download full report here


*NAB’s acquisition of Citibank to be reflected in the next quarter’s edition of the AFG Index.

Data note: 86400 data has been merged with UBank and UBank has been recategorised to become a part of the NAB stable in ‘Majors and their Associated Brands’ tables.

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