Australians adjust financial strategies amid changing property market dynamics

By Newsdesk

February 15 2024
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The 2023 calendar year saw Australian borrowers acquiring a total of $300.9 billion in new loans for property purchases, marking a 12.7% decrease from the previous year.

Australians adjust financial strategies amid changing property market dynamics

This downturn reflects the broader impact of rising interest rates and the escalating cost of living on the property market, according to recent findings by PEXA. In contrast, refinancing activities surged by 11.4% as homeowners sought more favorable mortgage terms.

PEXA's comprehensive Mortgage Insights Report, focusing on loan activities within Australia's five mainland states for the year, reveals that a significant portion of property purchases was funded by new loans, with 461,979 instances recorded. Additionally, 452,025 existing loans underwent refinancing during the same period.

Rising interest rates were a pivotal factor driving a notable uptick in refinancing, with the aggregate value of refinanced loans climbing to $220.4 billion, an 11.4% increase from the previous year. The total value of property purchased across the nation in 2023 amounted to $613.0 billion. Of this, $300.9 billion was financed through new lending, with the rest accounted for by cash payments or alternative financing methods.

All mainland states experienced a reduction in new lending, with the largest drops seen in New South Wales (NSW) and Victoria (VIC), where the total new lending reached $109.5 billion and $84.1 billion, respectively. Despite this general downturn, Queensland (QLD) saw an increase in the median loan value to over $464,000, suggesting a persistent demand within the state, underscored by the year's highest volume of sale settlements.

Mike Gill, PEXA's Head of Research, indicated that while all mainland states saw increases in refinancing volumes, the last quarter of 2023 witnessed a decline. He suggested, "This late decline suggests that Australian refinancing activity may have peaked, in response to the strong upswing in the interest rate cycle in 2023 and in line with the surge in fixed-rate loans in the preceding two to three years."

Furthermore, the Reserve Bank's decision to raise the official interest rates by 0.25% to 4.35% in November 2023, following a three-month pause, typically triggers an increase in refinancing as homeowners look for more competitive rates. However, Gill posits that the timing of this rate hike possibly deterred many from refinancing before year's end.

The report also highlights that for the first time since the pandemic began, the median loan values in NSW and VIC have seen a reduction, signaling an improvement in affordability. NSW's median loan value decreased to $647,000, and VIC's to $497,000. This shift suggests buyers are leaning towards borrowing less.

In the commercial lending segment, the eastern states of Australia witnessed a 13.4% decline in new loan volumes in 2023, with NSW and VIC experiencing significant downturns of 20.7% and 16.3%, respectively. Queensland emerged as the leader in new commercial loans, surpassing the larger states for the first time.

The changing dynamics of Australia's property and lending landscapes in 2023 underscore the adaptability of homeowners and investors in response to economic pressures and market shifts, with an increasing preference for refinancing and more conservative borrowing practices.

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