New survey findings from the Mortgage & Finance Association of Australia (MFAA) have confirmed that serviceability remains the number one reason mortgage broker clients are unable to refinance.
The second Refinancing and Mortgage Stress survey, with over 440 mortgage broker respondents, was conducted by the MFAA in February, to understand how changes in the lending market and economy are impacting borrowers.
“The dial hasn’t shifted when it comes to mortgage holders being able to refinance, with our survey indicating that more than half of mortgage brokers having considerably more clients in this position than six months ago, when we first ran the survey,” said MFAA CEO Anja Pannek.
2023 saw unprecedented levels of refinancing with over 880,000 loans coming off ultra-low fixed rates last year and a further 450,000 fixed rate loans are expected to expire this year.
“We know that borrowers coming off their fixed rates have been doing so in an environment of markedly higher interest rates, following 13 interest rate rises since May 2022,” said Ms Pannek.
The survey also revealed that 84% of mortgage brokers have clients in a ‘mortgage prison’, a rise from 82% last year.
“We have heard repeatedly from our members about clients who are good borrowers, with a strong repayment track record, being unable to refinance simply due to buffer rates. This is even when the client’s repayments would actually decrease if they were to switch lenders, trapping more Australians into a mortgage prison,” explained Ms Pannek.
Since the MFAA first ran the survey last year, some lenders have instituted a 1% buffer for dollar-for-dollar refinances, however the survey found lenders’ strict requirements for eligibility make it difficult to access financing under this option.
“While 59% of our members told us that the 1% serviceability buffers have made it somewhat easier for their clients to refinance, they also noted that further changes to serviceability buffers would assist more of their clients to refinance,” said Ms Pannek.
“We believe it is possible for lenders to maintain responsible lending and help more borrowers out of mortgage prisons, by having flexibility when it comes to addressing the needs and objectives of a borrower.”
The need for flexibility around buffer rates should be a long-term consideration, even if interest rates do come down in the future, Ms Pannek stated.
Against this backdrop of the ongoing prevalence of mortgage prisoners and persistent serviceability challenges for refinancers, 83% of brokers reported their clients are more concerned about meeting their repayments than six months ago.
“This has declined from our survey last year, dropping by 10 percentage points from 93%, but remains very high.”
“Interest rate increases are still cited as the main reason borrowers will find it challenging to make repayments in the coming six months, however compared to last year’s survey this has dropped by close to 8 percentage points indicating that overall borrowers are somewhat adjusting to current interest rate levels,” said Ms Pannek.
“We should not overlook the fact, however, that there are also many borrowers struggling with the survey indicating that hardship enquires, while still low, are starting to increase.”
Ms Pannek said the insights MFAA members shared in the survey last year have been instrumental in their advocacy, a key result of which has been to focus the Government’s attention on streamlining the discharge process for borrowers under stress through the reinvigoration of the ACCC Home Loan Price Inquiry.
“Our insights have also been sought out by Government as they seek to understand what is really happening at the coalface for Australian home loan borrowers as part of its broader focus on competition across the Australian economy. The results of this survey will demonstrate shifts over time and will be instrumental in our continued advocacy on behalf of our members and their clients,” said Ms Pannek.
