Aussies Rush to Refinance Amid Rate Cuts

Rate cuts are meant to boost housing demand, but instead, many Australians are using them to refinance existing loans in a bid to ease budget pressures, leaving new mortgage lending on the decline and investors seizing the opportunity.

High living costs and record-breaking house prices are reshaping how homeowners respond to interest rate changes. Following the Reserve Bank’s second rate cut this cycle, recent data shows many borrowers are jumping at the chance to refinance instead of buying a new home. This reflects a more cautious downstream effect on personal finance, where freeing up disposable income has become more appealing than taking on fresh debt.

According to new figures, new home lending dropped 3.5% in the March quarter, despite the February rate cut - the first reduction in over five years. On the other hand, refinancing climbed 2.5% for the quarter and surged 22% in the past year. Refinancing now makes up nearly 40% of all mortgage activity, with many Australians opting to extend mortgage terms to reduce monthly repayments.

This long-term mindset appears in other trends too. Rather than upgrading to pricier homes, some owner-occupiers are staying put and investing in knockdown-rebuild projects to avoid fees like stamp duty. The broader economic picture also shows that consumers are choosing to save the extra cash unlocked by lower repayments, reinforcing a cautious recovery pattern.

Experts warn that, despite two recent rate cuts totaling 50 basis points, interest rates remain restrictively high. A further 0.25 percentage point cut brings the average owner-occupier variable rate to around 5.8% - translating to a modest monthly saving of around $81 on a $750,000 loan. Still, for many, that’s just enough to pause and bank the savings, rather than dive straight into buying.

Investors, however, seem to be reading the situation differently. With more hesitant homebuyers sitting on the sidelines, investor lending is ramping up at the fastest pace since 2022. Some analysts suggest this could be a signal that confidence is starting to return to the property market, even if it hasn’t fully filtered through to owner-occupiers yet.

While it’s uncertain if further rate cuts will kick-start a broad-based recovery in new home sales, history shows price gains of 10 to 15% often follow easing cycles. For now, the market is in a position where cautious consumers and opportunistic investors are pulling in different directions, leaving the next few months critical in revealing where the housing sector is truly headed.

Source: The Australian, ABS, SBS, MPA