According to the PEXA Mortgage Insights Report released today, lower sale settlement volumes and prices drove the decline in aggregate lending to 12.7% to 461,979 over the 12 months last year.
A total of $300.9 billion was borrowed in 2023 to fund the purchase of properties.
Conversely, refinancing activity rose 11.4% to 452,025 across the five mainland states, as homeowners, particularly borrowers with expiring fixed-rate terms, shopped for better deals on their mortgages.
Property owners with existing loans refinanced a total of $220.4 billion in the previous year.
“Rising interest rates served to dampen buyer demand, whilst motivating existing owners to switch lenders to secure a better deal on their home loan,” PEXA head of research Mike Gill said.
During the Covid pandemic when the cash rate hit all-time lows, the share of home loans on fixed rates made up nearly half of all new mortgages in mid-2021.
However, as the RBA started raising the cash rate from 0.10% to 4.35%, the widely popular under-2% home loans skyrocketed to 5% and up.
“Five official interest rate rises over the course of the year spurred property owners to refinance their mortgages,” Mr Gill said.
“Many owners who had taken advantage of low fixed rate loans offered by lenders during the onset of the pandemic rolled off these loans in 2022 when the loan term expired.”
Refinancing up despite serviceability constraints
ABS’ latest lending data showed Aussies borrowed less in December, with the total value of new loan commitments for housing falling 4.1% on seasonally adjusted terms.
Owner-occupier loans plunged 5.6%, while investor loan commitments contracted 1.3%.
External refinances topped $159 billion in 2023, in original terms, up from $143.6 billion in 2022, despite concerns around rate rises, mortgage prisons, and serviceability constraints.
According to the PEXA report, of the $613 billion worth of properties purchased nationally, $300.9 billion was borrowed in new lending, while the remaining $312.1 billion was paid in cash.
Falls in new residential loans were recorded in all five mainland states including NSW (down 8%), Queensland (down 11.8%), Victoria (down 13.2%), South Australia (down 13.6%), and Western Australia (down 5.2%).
Mr Gill said the lower sale settlement volumes last year indicated “a slight improvement” in affordability, with buyers borrowing lesser amounts to fund purchases.
Median loan values fell for the first time since the pandemic, with NSW and Victoria leading the drop to $647,000 and $497,000.
Both states, as per the PEXA report, also led the lending decline after values fell to $109.5 billion in NSW and $84.1 billion in Victoria.
Refinancing cools down in last quarter
Refinancing activities heated up last year, with all five mainland states recording growth in total values.
NSW and Victoria saw the highest total value of refinances throughout the year, at $79.6 billion and $71.9 billion, respectively.
Meanwhile, WA had the most number of existing homeowners signing on their new refinancing agreement, accounting for 20.7% of the total volume. All other states also posted at least a 7% increase.
While refinancing grew strongly throughout 2023, volumes in the final quarter fell below expectations, suggesting a cooling down in activities after the RBA raised the cash rate to its current peak at 4.35%.
“Historically, rate rises stimulate refinancing activity as owners are motivated to look for a better deal on their home loan,” Mr Gill said.
“However, the timing of the rate rise, being close to the end of the year, may have prevented many owners from being able to act before the Christmas break."
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