Banks turn to refinancing

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Banks are starting to offer incentives for investors and homeowners to switch when refinancing their mortgages as home sales plummet.

Wednesday, June 22, 2022, 10:58 a.m.

by Sally Lindsay

They offer cashback on loans and may even decide to lower their mortgage interest rates over the next year as a large chunk of mortgage holders get rid of their underwritten low fixed interest rates over the course of the year. of the past two years. years.

CoreLogic’s latest buyer classification report shows that about 48% of loans are fixed and need to be refinanced within the next 12 months.

To attract new customers, Kiwibank offers 1% of any new home loan as a cash contribution, up to $10,000, while Westpac offers $5,000 for new home loans over $500,000. Kiwibank says its offer aims to put more money in customers’ back pockets at a time when the cost of living is rising.

A 28.4% drop in home sales for the year to the end of May prompted banks to focus on refinancing and borrowers can expect better deals if they shop around.

Residential property sales are expected to fall further as interest rates rise, immigration increases only slowly, consumer confidence weakens and credit becomes difficult to obtain.

Fears of further interest rate hikes above the 7% mark fueled an increase in borrowers locking in longer-term fixed rates.

ASB reports that there has been an increase in the number of borrowers opting for terms of three to five years for their mortgages and that a significant number of mortgage holders have had a longer term portion of their mortgage, i.e. double the number of 2021.

Money buys a lot

However, cash is still king when buying residential property.

Data from CoreLogic’s Buyer Classification shows that the most striking change in recent months has been for multi-cash property owners (MPO market share fell from 9% in October last year to 14% in April/May this year.

CoreLogic Chief Economist Kelvin Davidson admits there are some important caveats, for example, some of these purchases may not really be cash – but simply made using the funds freed up by the reshuffle. debt on other properties in a portfolio.

“It is possible that there are also temporary effects, i.e. people who have bought but still own their old property because they have not yet been able to sell it, or even accidental owners”, who actively chose to keep their old property and rent it out rather than sell it in a weaker market.

He says that while MPOs’ market share in cash has increased, the number of purchases they make has decreased – it’s just that the decline has been smaller than for other buyer groups.

“Even with these caveats, in an environment where credit is harder to come by and mortgage rates have risen sharply, as well as some potential ‘bargains’ beginning to emerge, it stands to reason that people with funds owning larger amounts and/or buying with cash to take advantage of current conditions.

For mortgaged MPOs, their share of purchases in May was 23%, about where it has been for the past three to four quarters. This follows the cyclical peak of 29% in the first quarter of last year – before the 40% deposit requirement and the removal of interest deductibility.

Davidson says that while MPOs’ share of mortgages is lower than it used to be, they haven’t completely deserted the real estate market.

Nearly one in four buyers still fall into this category, with some investors/DFOs able to find compelling enough reasons to buy real estate, with higher yielding stocks and/or new construction potentially a target.

Tags: banks

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