He said it was probably driven by the fact that many borrowers had been fixing for short terms so they did not have to worry about paying large break fees to move to another bank.
It showed that mortgage holders were actively monitoring rates and terms, he said. “With a high share of borrowers coming off fixed terms over the next six months or so, it’s possible this switching behaviour may remain elevated for a while yet.”
A record number of existing mortgage holders changed lenders in June. Photo / 123rf
David Cunningham, chief executive of mortgage advice firm Squirrel, agreed that refinancing activity was higher than normal.
He said people were motivated to switch because they could get a “cash back” incentive from the new lender.
“There’s not a lot of discounting in interest rates, 0.05% might be the discount – the cash back has got the most benefit.”
He said it was common for a borrower to receive 0.8% of the loan’s value as a cashback, but it could be more.
“If you have a $1 million loan – in Auckland that’s not uncommon – that’s $8000. That pays for the Christmas presents. I know of a family that had a very good Christmas because they got a cash back from a bank. Everyone got treated.”
He said while 18 months ago people were using bank cashback offers to help them survive with higher interest rates, it was more likely that the money would now be spent.
“It’s another thing that’s positive for the economy.”
He said cashbacks were subsidised by those borrowers who did not claim them.
“Some people get it some don’t but those that don’t are subsidising those that do.”
He said it was a bit of a “pass the parcel” for banks and a zero-sum game that they had to be part of to retain market share.
He estimated cash backs and mortgage broker commission could have amounted to about $30m in costs for banks in June.
Glen McLeod, head of Link Advisory, said borrowers were getting cash back anywhere from $3000 to $20,000.
“Banks are offering substantial cash-back incentives to attract homeowners – an appealing proposition, particularly in challenging economic conditions. However, these offers often come with clawback clauses, requiring partial or full repayment if the borrower exits within three to four years.
“Refinancing activity is also being supported by a shift in lending conditions. Back in 2020, historically low interest rates enabled many borrowers to consolidate their loans, creating the opportunity now to refinance without incurring break costs – removing a key barrier to switching lenders.
“But the real question is: is refinancing the right move for your financial future? In some cases, yes – especially if another lender offers products better aligned with your needs. In others, your current provider may already be the most suitable option.”
He said an adviser could help people work out whether refinancing was a suitable option.
