May 31, 2024

Mortgage Choice Home Loan Report: borrowers cautiously optimistic despite challenging conditions

This is the first edition of the Mortgage Choice Home Loan Report. This quarterly update provides insight into borrower sentiment, activity and trends based on Mortgage Choice home loan data, as well as consumer research commissioned through Honeycomb Strategy via a nationally representative survey of 1,000 consumers. This research provides insights into Australians’ sentiment, attitudes and intentions around mortgage borrowing.

Key insights from March quarter FY24

• Borrowers continue to feel the pinch, with nearly 4 in 5 making sacrifices to keep up with their home loan repayments.
• The remainder of the year looks set to be busy for the property market with 57% of prospective buyers saying they delayed deciding to buy until 2024. Mortgage Choice data also showed the value of purchase submissions increased 17.5% compared to the previous March quarter.
• Rising property prices around the country have driven a ~9% increase in the national average loan size.
• The passing of the inflation peak and relative stability in cash rates is flowing through to reduced national refinancing activity – down almost 26% from the same quarter last year.

Australians making sacrifices to keep up with home loan repayments

The consumer research revealed that the high cost of living and dramatic rise in interest rates is affecting borrowers, with 78% reporting they’ve made sacrifices to keep up with their home loan repayments over the last 12 months.

Among the sacrifices made were:

• Eating out less frequently – 54%
• Cutting back on entertainment (e.g. movies, concerts) – 50%
• Delaying or cancelling holidays – 34%
• Cancelling subscription services– 29%
• Taking on additional work or side jobs – 18%
• Seeking financial assistance from family – 7%

Speaking about the findings, Mortgage Choice CEO Anthony Waldron said, “Consumers are telling us loud and clear that they’re still feeling the pinch when it comes to keeping up with home loan repayments. The survey highlights that borrowers are eating out less, cutting back on movies and concerts, cancelling streaming subscriptions, and putting off or cancelling holidays.

“Borrowers are not just forgoing experiences and entertainment, 20% are dipping into their savings or emergency funds, 18% are taking on additional work or side jobs, and 7% are seeking financial assistance from family or friends.”

Prospective buyers returning to the property market

The consumer research within the Report signalled pent-up demand in the property market, with 57% of those looking to buy in the next 12 months saying that they have delayed their decision to buy until 2024.

It also indicated prospective buyers are looking forward to making progress with their property goals, with 70% reporting feeling positive towards their purchase, up from just 59% in May 2023. This is reflected in the 17.5% year-on-year increase in submissions value for property purchases over the March quarter made through Mortgage Choice’s network of more than 1,000 brokers.

Mr Waldron said, “Our brokers are reporting a sense of cautious optimism from customers motivated to act on their property plans, which is reinforced by this consumer research that shows a strong appetite for property purchases. Paired with the continuing momentum we’re seeing for new purchase loans; we anticipate stronger demand in the months ahead.

“Among the reasons customers come to our brokers is because they’ll have choice of lender – helping them find the loan that’s best for what they need. They also value having an expert in their corner who can help them navigate the often-complex home loan process.”

The research reinforced the generational divide when it comes to property, with interest rates top of mind for prospective buyers. Gen Z was feeling the least confident out of all age groups, while Boomers feel indifferent to interest rate changes. The data showed Millennials feel the rising cost of living an especially pronounced barrier to them buying property.

Average loan size up

Average loan size across territories over March quarter

The data from Mortgage Choice’s broker network shows the national average loan size rose to $583,416 – up 8.9% year on year. This reflects the March PropTrack Home Price Report, which revealed national home prices are sitting 7.1% above March 2023 levels. The March PropTrack Home Price Report reported national home prices are sitting at $768,000 – and the capital city median home value at $832,000.

The territory breakdown of the Mortgage Choice data reveals growth in the average loan size in almost every region, with South Australia/Northern Territory and West Australia leading the way. These results are in line with PropTrack reporting, which shows that in the first three months of 2024, year-on-year home price gains in Perth have been the strongest on record dating back to 2010, and home prices are almost on par with Hobart.

Mr Waldron said, “In the first quarter of 2024, we saw submission values and the average loan size increase year on year. Our brokers in Perth are reporting that their market has been reinvigorated over the last year, driven by a more stable interest rate environment, high demand.”

Reduction in refinancing activity

As the economy continues in a prolonged period of cash rate holds, the Mortgage Choice home loan data in the Report shows a substantial reduction in refinancing activity. Refinancing activity has dropped from 40% of borrowings in the March 2023 quarter, to 26% of borrowings in the March quarter of 2024.

Changes in loan purpose over March 2024 quarter

*’Other’ includes SMSF and business loans.

Mr Waldron said, “Our Mortgage Choice brokers around the country are telling us that in this market, with higher home loan interest rates and rising property values, it has become difficult for some customers to refinance because many don’t meet the serviceability requirements for a new home loan. Another contributing factor is changes to retention policies, with some lenders offering better rates to keep existing customers,” said Mr Waldron.

“One of the primary factors driving the reduction in refinance activity is the fact that interest rates appear to have stabilised, with the Reserve Bank leaving the cash rate unchanged since November 2023. The fixed-rate ‘cliff’ has also now passed, with most borrowers who were on a fixed rate having already shifted to a variable rate,” added Mr Waldron.

Mortgage Choice home loan data confirmed borrowers continue to prefer variable-rate mortgages. In the March 2023 quarter, 94.7% of loans submitted were for variable rate home loans and just 5.3% had a fixed component. Over the March 2024 quarter, 98.3% of loans submitted were for variable- rate mortgage products, with just 1.7% of submissions for fixed-rate loans.

Mr Waldron said, “It’s not surprising that more borrowers are choosing variable rates. Fixed-rate home loan pricing has steadily increased, rising higher than variable rates. Gone are the days of fixed rates under 2% - borrowers would now struggle to lock in a fixed-rate under 6% per annum.”

For further information, or to arrange an interview, please contact:
Tina Alldis
Mortgage Choice Corporate Communications
0459 215 605
tina.alldis@mortgagechoice.com.au

Important information
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.

About the Report
The Mortgage Choice Home Loan Report looks at Mortgage Choice submission data, which represents all home loan applications submitted by the Company’s franchise broker network, and a consumer survey of 1,000 Australians conducted in April. The Report will be released quarterly with analysis of the previous quarter.