Refinancers more likely to use a non-major lender, says AFG

Refinancing activity has reached the highest level since 2017, according to the latest AFG Index Data for the final quarter of the 2023 financial year.

According to AFG, refinancers are up to 33%, the highest level since the third quarter of 2017 financial year.

AFG CEO David Bailey said this came as the weight of interest rate increases bears down on borrowers.

“These customers are also historically more likely to use a non-major lender, with market share for the non-majors amongst refinancers at 40.7% for the quarter,” he said.

Salvest managing director Anthony Ferrero said non-bank lenders can offer financing alternatives to borrowers who may not meet the rigorous criteria set by traditional banks, particularly in the context of refinancing.

“Non-bank lenders provide more flexible lending terms, quicker approvals, and a willingness to consider projects that might be deemed higher risk by traditional lenders,” he said in a recent story from Infochoice.

Major lenders still dominate

The AFG report showed that the major lenders’ overall market share declined from 61.8% to 60.4% during the quarter.

However, it is interesting to note that a market share above 60% means their market dominance is back to where it was in 2017.

Mr Bailey said majors have a significant advantage over their smaller competitors given their access to a deeper pool of deposits because of the implicit government guarantee protecting the savings of their customers.

“This tilts the playing field in favour of the major lenders with their funding advantages and higher interest rates for existing customers creating an arbitrage that has enabled them to offer discounts and ‘cash back’ deals to lure new customers,” he said.

Mr Bailey said the removal of cashback offers by many major players will help smaller lenders compete for customers.

Fixed rates, investor activity rise

The AFG Index data showed that rate hikes led to the increase in the proportion of home loans with fixed rates, clocking its three consecutive quarters of growth.

Still, the level remains below the longer-term average of 8% of all home loans.

“This is markedly down from the highs of 2022 when fixed rate home loans reached 38% of total home loan volumes,” Mr Bailey said.

Meanwhile, investor activity went up, leading to the share of investment home loans hitting 29%, the highest level since the first quarter of 2018.

Overall, AFG’s network of brokers lodged $22bn in residential mortgage finance for the final quarter of 2023, representing a 15.6% growth after three quarters of consecutive falls.

Australia’s major markets registered an increase, led by more than $1bn increases in lodgement volume in both Victoria and New South Wales.

However, the likely impacts of interest rate hikes have led to the 37% decline in the number of borrowers choosing to take out finance to upgrade their property, hitting the lowest level since 2017.

-

Photo by @mbpteerapat on Canva.