The peak body representing Australia’s mortgage brokers says thousands of Australian mortgage holders left in a “mortgage prison” – unable to refinance to a lower interest rate due to changed lending criteria by banks – should look to non-bank lenders for help.
Peter White, executive director of the Finance Brokers Association of Australia, (FBAA) has also called on the Government to step in and push lenders to be more realistic with modelling.
He explained that banks have recently increased the interest rate ‘buffer’ they add onto a loan to ensure the borrower has capacity to pay if rates rise, but says the extent of the increase has led to the ridiculous situation of borrowers who are already paying a mortgage, being rejected for loans that actually reduce their repayments.
“It’s madness. Someone wants to refinance to pay a lower rate yet the bank adds an extra four per cent to the interest rate and decides the borrower can’t afford to pay less!
He said while it’s normal for a lender to add two per cent to the prevailing interest rate as a measure of safety if rates rise, lenders are now effectively doubling the rate to a level where the borrower can’t meet the new lending criteria.
“The rate the banks are now using makes it impossible for many people to refinance, locking them into higher rates.
“This doesn’t affect the wealthy, it affects those who can least afford it, and it has almost stalled the home loan refinance market.”
The assessment change is a knee-jerk reaction by the banks to recent inquiries and the royal commission, according to Mr White, who predicts the banks may start to set an even higher rate.
He said he has directly urged the Federal Government to step in, but borrowers in this position should also look to non-bank lenders that are not under some of the same regulatory oversight.
“This is where the knowledge of finance brokers can help. There are a number of these lenders who will calculate a refinancing rate at more realistic levels, so I’d advise those wanting to refinance to contact a broker and ask the question.
“The banks certainly won’t help you”