Mortgage Switching Picks Up Pace
The Age
Wednesday March 23, 1994
THE RAPID growth in refinancing - changing over a housing loan during the life of the mortgage - has significant ramifications for Australian mortgage markets. Whereas once borrowers retained their original mortgage until they paid it off over a period of up to 25 years, it is a different story today.
As a result of intense competition between lenders, borrowers are now more able to switch their business between lenders to get better terms, cheaper interest rates or other advantages.
Those who are happy with their existing lender can, and increasingly do, seek to negotiate a new loan agreement; those who are not happy simply take their business elsewhere.
``Elsewhere" may include one of the newer banks, such as Bank of Melbourne, which, according to its marketing manager Ms Fiona Mason, is lending at record levels.
Ms Mason commented that new and existing borrowers were now shopping around for the best offers available. A spokesman for St George Bank, another big housing lender, agreed that borrowers were far more aggressive in hunting out the best deal.
Figures from the First National Real Estate group show that external refinancing (refinancing through a new lender) grew by 106 per cent cent between 1991-92 and 1992-93.
In that 12-month period, refinancings rose from 31,810 ($2162million) to 58,655 ($4451million).
The involvement of banks in refinancing grew from $1822million (84.3 per cent of the total in 1991-92) to $3816 million (85.7 per cent) in 1992-93.
First National says that, at a level of average turnover exceeding $500 million a month, external refinancing will soon exceed the value of commitments for new dwelling construction in Australia. It says that the total level of refinancing probably already exceeds the value of lending for all types of new homes.
But there is some confusion as to how much of this money is actually being directed into the housing market. Some industry sources have expressed concern that increasing amounts of consumer and even business finance are being raised against the security of family homes.
The Australian Bankers Association says that every individual loan made by a bank is supposed to be reported by purpose (eg. housing loan, personal loan, etc.) This information should be provided in the documents required by the Reserve Bank and the Bureau of Statistics.
But not all of the deals being negotiated between borrowers and lenders are quite so clear-cut. For example, some lenders are offering consolidation packages in which separate existing borrowings can be replaced with a single new loan.
There is concern that loans such as these, advanced against the security of a residential mortgage, might be recorded statistically as ``housing loans".
The banks are aware of this problem. The Bureau of Statistics has expressed confidence in the accuracy of its figures. But Mr Graeme Fenton, technical director of Mortgage Information Services, a marketing and research firm, believes the problem is more serious.
Mr Fenton says that the official data is becoming increasingly hard to accept because of the changing nature of the housing finance market, and that statistical methods and procedures need updating.
``We don't accurately know how many and how much, and until we do, it makes effective interest rate policy that much more difficult to achieve," he says.
Statistical hiccups aside, refinancing clearly is here to stay. First National estimates that up to 20 per cent of all home loans in Australia could be refinanced during the current three-year period.
The possible scale of refinancing is illustrated by US statistics which show that 33 per cent of American home owners have refinanced their mortgage (internally or externally) since 1990, and a further 14 per cent are considering such a move.
In other words, close to 50 per cent of all housing loans in the US could be turned over in the current three-year period.
In Australia, banks are increasingly looking to invest in residential mortgages, not just directly, but also by purchasing entire loan portfolios from other lenders, such as cooperative housing societies.
Competition among lenders will further encourage borrowers to consider a change for the better.
© 1994 The Age
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