After the RBA’s tightest grip on monetary policy in three decades, more than 880,000 Australian borrowers are facing a mortgage cliff as they roll off record low fixed interest rates onto a markedly higher variable rate.
For this reason, Australia has already seen an additional 14 percent of borrowers refinancing their home loans this year, to the total tune of $20.2 billion, as of June 2023.
In this environment, what are lenders doing to attract, protect and retain consumers?
Naveen Ahluwalia, Executive, Policy and Legal at the Mortgage & Finance Association of Australia discusses research the peak industry body recently conducted to find out.
Flexibility is key
“We have seen quite a lot of flexibility among lenders in response to the serviceability challenges borrowers are facing,” Ms Ahluwalia told Informa Connect ahead of the Credit Law Conference.
“Eight out of ten brokers we surveyed said up to half of their refinancing clients were dealing with serviceability issues.
“Some lenders are helping them with term extensions, or by moving them onto an interest only loan. Others are taking a deeper look at their credit policies.”
To assist mortgage prisoners – borrowers who are ineligible for refinancing – some banks are closely looking at what they can do from a responsible lending perspective, under a like-for-like financing arrangement.
“We are seeing that the movement in interest rate buffers by lenders could help some of these borrowers, although how much of an impact is something we are going to be keeping a close eye on,” Ms Ahluwalia explained.
“Obviously there are good reasons for having buffers in place. However, it can also be useful to have some flexibility around them for customers that have never missed a payment, who have not had any defaults, and had no change in their personal circumstances.
“We want to see borrowers in a better position than they are in now. If someone meets all of those criteria, it may make sense to apply a lower buffer and help them gain a better rate.”
Discounts and offers
Rate negotiations are also proving popular, with 88% of brokers claiming they always look to negotiate a discount for clients with their current lender.
“The work brokers are doing is encouraging more lenders to provide discounting on rates to retain borrowers. We continue to encourage lenders to put their best foot forward in these discussions and be upfront on the best rate they can offer to their customers.
“We have also seen more consumers take advantage of brokers to help find the best deals – including a large portion who did not use a broker when securing their initial loan.”
In fact, since the beginning of 2023, 95% of brokers surveyed said they have had clients coming to a broker for the first time when seeking to refinance their current home loan.
“This tells us that customers are finding the refinancing market complex to navigate and they are looking for an expert to help navigate them through. It also tells us that there are potentially many stressed borrowers out there who know they can achieve a better deal by going to a mortgage broker, rather than their existing lender.
“Ultimately, this means banks need to continue investing in how to work with brokers to be more competitive, as brokers are obviously more privy than general consumers to the types of products out there. With a broker now on their side, customers will have a better grasp of the market and source the best products for their circumstances.”
Naveen Ahluwalia is the Executive of Policy and Legal at the Mortgage & Finance Association of Australia. Join her for more insights and debate at the upcoming Credit Law Conference, where she is due to participate on a panel.
This year’s event will be headlined by speakers such as Greg Yanco, Executive Director, Regulation and Supervision group, ASIC; Belinda Allen, Senior Economist, CBA; and Natalie Cameron, Lead Ombudsman, Banking & Finance, AFCA.
The event will take place on 18-20 October at the JW Marriott Gold Coast Resort and Spa.
Learn more and register your place here.