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Alternative Refinance Options

Alternative Refinance Options

Serviceability still top barrier preventing refinances, says MFAA

Brokers survey also reveals more mortgage prisoners

Serviceability remains the number one reason mortgage broker clients are unable to refinance, according to a new survey conducted by the MFAA. The peak industry body for mortgage brokers released its second Refinancing and Mortgage Stress survey on Thursday.The survey, of more than 440 mortgage broker respondents, was conducted by the MFAA in February, with the aim of understanding 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 (pictured above).In 2023, there were unprecedented levels of refinancing with more than 880,000 loans coming off ultra-low fixed rates last year and a further 450,000 fixed rate loans  expected to expire this year.

Pannek said the MFAA knew that borrowers coming off their fixed rates had been doing so in an environment of markedly higher interest rates, following 13 interest rate rises since May 2022.The survey also revealed that 84% of mortgage brokers have clients in “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,” Pannek said.

“This is even when the client’s repayments would actually decrease if they were to switch lenders, trapping more Australians into a mortgage prison.

1% buffer for refinances hard to access

Since the first MFAA survey in 2023, some lenders have introduced a 1% buffer for dollar-for-dollar refinances. However, the survey found lenders’ strict requirements for eligibility made 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,” Pannek said.

“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.” Pannek said the need for flexibility on buffer rates should be a long-term consideration, even if interest rates do come down in the future.

The survey also revealed that 83% of brokers reported their clients being 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,” Pannek said.

“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 eight percentage points, indicating that overall borrowers are somewhat adjusting to current interest rate levels. “We should not overlook the fact, however, that there are also many borrowers struggling, with the survey indicating that hardship enquiries, while still low, are starting to increase.”

Pannek said the insights MFAA members shared in the 2023 survey had been instrumental when it came to advocacy. It had focused the federal 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,” said Pannek. “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.”

Don Nicolussi

About Don Nicolussi

Don Nicolussi qualified as a mortgage broker in 2011 achieving the historical course highest score since inception at that time for the National Finance Institute. His focus is on home loan optimization and property investment finance for families. As a former police officer, he has particular interest in finance for police and emergency services. Don worked as a police officer in Chatswood, Kings Cross and Brisbane Water between 1995 and 2004. Since leaving the police in 2004 he has been employed in property development and finance.

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