Rising interest rates led Australian borrowers to tighten their purse strings last year, with the total value of property purchases down 12.7 per cent, according to new research.

PEXA’s Mortgage Insights Report found that higher interest rates also led to borrowers looking for a better deal on their home loan, with refinancing activity increasing 11.4 per cent.

A total of $613 billion of property was purchased nationally in 2023, with buyers borrowing $300.9 billion to fund the purchases, while the remaining $312.1 billion was contributed with cash or other forms of financing, according to the report.

All mainland states saw new lending drop in 2023, with the largest states of NSW and Victoria falling to $109.5 billion and $84.1 billion respectively. 

The aggregate value of new lending in Queensland and Western Australia held steady or dropped marginally in 2023.

For the first time since the pandemic, median loan values fell, including down to $647,000, in NSW and $497,000 in Victoria.

However, in QLD the median loan value in 2023 increased to more than $464,000 as the state recorded the highest volume of sale settlements of any state during the year, indicating ongoing strength in demand in the Sunshine State.

Western Australia proved to be the most resilient market for new loans, with the state recording 63,059 new loans in 2023, which was only 5.2 per cent down on 2022.

PEXA’s Head of Research, Mike Gill, said while all Australian mainland states experienced significant growth in refinancing volumes during 2023, there was a notable decline in the final quarter of the year.

“This late decline suggests that Australian refinancing activity may have peaked, in response to the strong upswing in the interest rate cycle in 2023 and in line with the surge in fixed-rate loans in the preceding two to three years,” Mr Gill said.

“The Reserve Bank raised official interest rates by 0.25 per cent to 4.35 per cent in November of 2023, after pausing for the prior three months. 

“Typically, rate hikes spur refinancing activity as homeowners seek better options for their home loans. 

“However, the timing of this rate increase, so close to the end of the year, may have hindered many homeowners from taking action before the Christmas break.”

Mr Gill said median loan values fell for the first time since the pandemic in the two largest states. 

“These declines indicated a slight improvement in buyer affordability, with Aussie buyers now setting their sights on borrowing smaller amounts to fuel their property purchases,” he said.

In terms of refinancing, NSW led the nation on a value basis, with $79.6 billion of mortgages refinanced in the state in 2023, with Victoria coming in second at $71.9 billion.

Victoria had 148,368 refinances in 2023, the most of any state and up by 10 per cent in 2022 and ahead of NSW with 134,934 refinanced loans.

Western Australia saw the strongest growth in refinances in 2023 with the state posting 47,491 refinances, up 20.7 per cent from 2022.

Mr Gill said in the commercial lending space, Australia’s eastern states experienced a notable fall in new loan volumes of 13.4 per cent in 2023.

“The number of new commercial new loans declined substantially in NSW (down 20.7 per cent) and Victoria (down 16.3 per cent),” he said.

“This saw QLD overtake the larger states, with the highest number of new commercial new loans in 2023.”