A record number of property owners refinanced their mortgages in March as they searched for better deal amid rising interest rates.

The latest data from Australian Finance Group showed more than one in three mortgages (37.1%) sold were for refinancing. This is a sharp increase from 32.6% recorded in the same month last year and a healthy gain from 35.8% in February 2010.

AFG also found that a growing number of borrowers are turning away from the major banks (big four) and towards the second tier lenders.

In March, lending by the major banks fell to 82% with the non majors including non banks taking 18% market share. This is a 100% increase on the 9% market share of the second-tier lenders in March 2009 according to AFG.

Mark Hewitt, general manager, sales and operation, AFG said this confirmed the trend identified by the Australian Bureau of Statistics that bank lending drew back 88.1% of all loans in the fourth quarter of 2009, down from the high point of 92.5% during the credit crunch conditions in the first quarter of the year.

"Borrowers are making psychological transition to a post-GFC world. They are once again regarding other lenders as providing reliable and attractive alternatives to the majors. Increased competition can only be good news for property owners and buyers and we are seeing some innovation return to mortgage products and pricing," said Hewitt.

The escalating interest rate is also expected to further ramp up competition among lenders as major banks continued to break ranks in terms of their mortgage rate pricing.

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