Brokers can play a big role navigating startling shifting in customer trends, says LMG
Barely 10% of existing mortgage holders have elected to reduce their monthly variable repayments following the Reserve Bank of Australia (RBA)’s two interest rate cuts this year.
A new report from mortgage aggregator LMG, which sourced data from its 6,000-strong broker network, revealed the surprisingly tepid activity in the refinancing market.
The overwhelming majority of borrowers have instead used the RBA cuts to get ahead of their debts.
“Most borrowers aren’t easing off, they’re doubling down,” said Ewen Stafford (pictured), executive director and chief executive of LMG. “They’re using this breathing room to get ahead, not spend more. That tells us a lot about where Australians are at, cautious, considered, building buffers, accelerating the paydown of their loan, and setting themselves up.”
Stafford sees this as a smart move – and one brokers can play a big role in making sure customers make the most of it.
Impact on lending volumes
“Clients who are paying more than the minimum monthly repayments may not realise how much room they have to move, whether it’s repricing, restructuring, or unlocking equity,” said Stafford.
This conservative approach among borrowers is keeping overall lending volumes subdued, even though first-home buyer lending activity is on the rise (up by 35% month on month in June, albeit from a soft May).
13% of LMG approvals comprised first-home buyers in June – Source: Loan Market Group
“Unless repayment behaviour shifts, we’re unlikely to see a major lift in lending volumes. But the real story here isn’t volume, it’s mindset. Borrowers are thinking differently. And brokers can help them think even smarter,” said Stafford.
According to Stafford, this trend shift implies that borrowers are looking beyond rates to more strategic loan options like flexibility and long-term benefits.
“This is a moment for brokers to lean in,” Stafford said. “Clients who are quietly paying more than they need to may have more options than they realise - to save, to restructure, or to plan for what’s next.”
Bank margins taking a hit
Banks are likely to be feeling the pinch from this subdued refinancing activity – LMG estimates that new mortgage lending flows will need to increase by around 7% to offset the increased paydowns.
The rising popularity of offset accounts is throwing another spanner in the works. The 5.8% uptick in housing credit growth reduces to just 4.5% when netting out offsets. This directly impacts banks’ net interest income.
“Therefore, unless there is a material acceleration in new lending flows, we do not expect housing credit growth to provide a significant earnings tailwind for the banks,” said LMG.
Refinancing activity is expected to ramp up if the RBA opts to move ahead with more interest rate cuts.
Although the RBA blindsided the market with a hold in July, the overwhelming consensus is for a 25-basis-point cut when the Board meets on Tuesday, 12 August.
