Nearly all brokers have mortgage prisoner clients

With rates rising and fixed-rate home loans expiring, 96 per cent of brokers have said they have had at least one ‘mortgage prisoner’ client, according to a new survey.

Analysis of the May 2023 Broker Pulse survey by Momentum Intelligence has found that almost every broker respondent has had a client who has not been able to refinance to another loan due to serviceability issues.

According to the Broker Pulse survey, conducted between 1 and 15 June 2023, 96 per cent of brokers said that up to 10 per cent of their clients had not been able to refinance or get a loan because they could not pass the 3.0 per cent serviceability buffer.

Moreover, more than half (57 per cent) of the 256 brokers surveyed estimated that up to 20 per cent of clients were mortgage prisoners, while 43 per cent of brokers believed that at least a fifth of their clients were unable to pass APRA’s serviceability test.

Just 10 of the 256 brokers surveyed said that none of their clients were mortgage prisoners.

The findings are particularly pertinent given the rapidly rising rate environment. The Reserve Bank of Australia (RBA) has dramatically tightened its monetary policy in the past year, hiking the official cash rate 12 times since May 2022 to a decade high of 4.1 per cent.

Many lenders have passed on these rate rises to their home loan customers, with more hikes expected to come.

The rate rises are still being passed through the system, with major banks estimating that there is currently a lag of around three months – meaning variable rate customers are yet to receive the most recent 75 basis point hikes.

The hikes have particularly stung mortgagors who have rolled off super-low fixed rates, or are due to in the coming months.

Indeed, the RBA has estimated that around 880,000 fixed-rate loans will expire by the end of 2023, and another 450,000 in 2024, which could see a significant spike in loan repayments as borrowers switch to variable rates.

Nevertheless, APRA recently confirmed that it would be maintaining the serviceability buffer at 3.0 per cent above the loan rate following a review of its settings.

This is despite calls by the federal Opposition, as well as the broking and lending industries for the regulator to reassess the interest rate buffer in view of the post-pandemic economic environment, where the official cash rate has risen to a decade high (with economists forecasting further increases), inflation and cost of living have soared, and the economy has weakened.

The impact of this policy has been evident, with data from Lendi Group revealing that around 15 per cent of Australian first home buyers (FHB) rolling off their fixed-rate periods could become mortgage prisoners due to difficulty in refinancing as they have high loan-to-value ratios.

However, as more borrowers risk becoming mortgage prisoners, some lenders recently tweaked their serviceability buffers and offered exceptions to their credit policies for some eligible borrowers in order to help them refinance.

As a result, three in 10 mortgage prisoners who could not refinance as they did not pass serviceability tests may now be able to do so, according to more recent data from the Lendi Group.

Momentum Intelligence director Michael Johnson noted that with more fixed-rate clients rolling off their fixed rates and facing mortgage prison, it has never been more critical for brokers to hold their hands to help them weather this storm.

“We’re facing a challenging environment for borrowers. Mortgage brokers have the expertise and capabilities to guide their clients through this challenging period and solidify their status as the trusted adviser to Australian borrowers.”

To participate in next month’s Broker Pulse survey or for more information, click here.

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