Falling house prices could cause a drop in refinancing activity, new research has revealed.
According to data from RateCity, refinancing accounted for more than one third of all home loan activity in 2011.
However, RateCity chief executive Damian Smith said as house prices continue to fall, refinancing will become less popular, which would be a major blow for Australia’s lenders.
“The industry relies on refinancing of existing mortgages for a big proportion of their business. Refinancing was the main driver of home loan volume in 2011, as in fact it has been over the past decade,” he said.
“According to RateCity research, 34 per cent of all home loans last year were from refinanced mortgages. This is the highest proportion of refinanced loans on record for at least the past 20 years.”
However, this percentage is expected to drop as the latest statistics from RP Data show average Australian capital city property values fell by 3.6 per cent in 2011.
For a $400,000 home, that decline translates to a new value of $385,600.
“If property values drop further and it discourages borrowers from refinancing, the mortgage market could be in for a very slow year,” he said.