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Australian Finance Group’s (AFG) first-quarter results for the 2027 financial year (Q1 FY27) revealed that upgraders accounted for 46 per cent of residential mortgage lodgements, the highest share recorded in the aggregator’s data.
The share approached 49 per cent in September alone, as borrowers sought to move in a market shadowed by softening demand, four interest rate hikes, and a federal budget that overhauled investor tax settings.
Overall, AFG brokers lodged 36,720 mortgages worth $26.8 billion during Q1 FY27, down 4.5 per cent from the previous quarter and 12.4 per cent year on year.
The result followed a series of record-setting quarters, with AFG CEO David Bailey saying some moderation had been expected given the circumstances.
“Following several record-setting quarters, some moderation in activity was expected, especially after the groundswell of uncertainty following the changes in the May federal budget and higher cash rates,” he said.
“However, our 32-year history shows that in times of housing market uncertainty, the role of the broker remains critical. Activity built steadily through the quarter, with September the strongest month since the Budget.”
The average loan size, however, climbed to a record $730,145, up 4.5 per cent year on year, which AFG attributed to increased upgrader activity.
Bailey said: “While overall lodgements eased from the record highs achieved a year ago, upgrader activity continues to hold up well.
“Upgraders now account for almost half of all residential lending activity and remain a significant source of market demand.”
Investor activity softens
Investor participation eased during the quarter, with investors accounting for 32 per cent of AFG’s residential lodgements, down from 34 per cent in the previous quarter.
According to a separate report by PropTrack, the number of investor loans declined by 9 per cent in the June quarter, compared with a 3 per cent decline for owner-occupiers.
While credit reporting bureau Equifax found that first home buyer (FHB) mortgage demand fell by 22.1 per cent year on year in September, AFG’s broker data found the proportion of FHB lodgements remained stable at 12 per cent.
This matched the previous quarter’s share and was up from 11 per cent in Q1 FY26.
Bailey said investor activity had eased as anticipated, while first home buyers appeared to be waiting for greater certainty around house prices and interest rates.
“With house prices easing and the interest rate outlook still unclear, this cohort of customers is biding its time, with demand likely to return once conditions stabilise,” he said.
Refinancing remains subdued
Despite the changing interest rate environment, refinancing activity has yet to lift as expected, with Bailey describing it as “unusually low given the stage of the interest rate cycle”.
Refinancing made up 15 per cent of AFG broker activity, down from 16 per cent in the previous quarter, 17 per cent in Q1 FY26, and 26 per cent in Q1 FY25.
Bailey said: “Historically, we would expect to see more borrowers shopping around, but serviceability constraints and uncertainty around interest rates are weighing on home owners. In addition, lenders appear to be working hard to retain existing customers.
“Our experience has always been that when Australians experience turbulence in house prices, upgraders are the first to react, and in a changing rate environment, refinancing inquiries from customers begin to increase.
“That lift in refinancing has yet to materialise, but history suggests it is not far away.”
The subdued refinancing activity comes as borrowers continue to maintain relatively low loan-to-value ratios.
AFG’s national average loan-to-value ratio (LVR) eased to 63.1 per cent in the September quarter, down from 63.4 per cent in the previous quarter and 65 per cent in Q1 FY26.
The aggregator said the figure remained among the lowest recorded in recent years, reflecting the maintenance of “overall sound credit quality”.
Interest-only loans also fell to 22 per cent of total loans, down from 25 per cent in the previous quarter and 24 per cent in the same quarter last year.
Bailey said: “The first quarter of FY27 has been defined by a market coming to grips with government policy changes, falling house prices and a more uncertain interest rate environment.
“However, as the quarter progressed, we saw early signs of strength and resilience in overall lending activity.
“One thing remains clear: while market conditions continue to evolve, demand for the support and guidance brokers provide remains strong, positioning the channel to assist Australian borrowers throughout the property cycle.”
[Related: Consumer confidence hits 30-year lows following rate hike]
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