Economists and markets universally expect the Reserve Bank of Australia (RBA) to hike the official cash rate (OCR) another 0.25% at Tuesday’s monetary policy meeting.
This would lift the OCR to 3.35%, which would be the highest rate since September 2012. In a similar vein, the benchmark discount variable mortgage rate will lift to 6.70%, which would be the highest rate since April 2012:
The impact on variable rate mortgage borrowers is illustrated in the below table:
Once Tuesday’s rate hike is passed on to borrowers, variable mortgage repayments will be 45% higher than the April 2022 pre-tightening level.
For somebody paying the indicator discount rate on a $500,000 mortgage, this would represent a lift in repayments of nearly $1,000 per month.
Given the record pace of rate hikes, it is not surprising to see that record numbers of Australians are seeking out better deals and mortgage refinancing activity is booming:
According to the Australian Bureau of Statistics (ABS) data released on Friday, $19.1 billion worth of mortgages were refinanced across Australia in December. This was the second highest level on record behind the previous month.
This boom in refinancing has been driven by owner-occupiers, with $13.0 billion of owner-occupier mortgages refinanced in December, second only to the all-time high seen in the previous month.
So, while new mortgage commitments are crashing, down around 30% year-on-year in December (see below chart), refinancing activity is smashing records.
I expect mortgage refinancing activity to break more records in 2023 as the RBA hikes rates further and roughly 800,000 fixed rate mortgages expire.
