Login
iscover
Not only are Australians increasingly mortgage stressed, but new data shows that refinancing is becoming more and more difficult for home owners as well.
According to a report from personal finance marketplace and advice company, Compare Club, the number of home owners who are struggling to refinance due to serviceability issues has doubled from 15 per cent to 30 per cent in less than six months alone.
Moreover, the number of refinancing enquiries from Australian mortgage holders whose loan-to-value ratio (LVR) sits at 90 per cent or more is now at its highest level since May 2022, when interest rates began to rise.
Refinancing becomes incredibly difficult with LVRs exceeding 80 per cent, as banks will generally require a borrower to pay lenders’ mortgage insurance (LMI) and it can be hard to access competitive rates, leaving home owners effectively locked in “mortgage prison”.
Compare Club’s analysis of over 49,000 refinancing enquiries showed that the number of borrowers seeking to refinance with LVRs of 90 per cent or higher has been sharply increasing since April 2023.
Up until the end of 2022, those seeking to remortgage with LVRs of 90 per cent or more accounted for roughly 12 per cent to 20 per cent of enquiries. In April, these enquiries jumped to 38 per cent, while in July they made up nearly 60 per cent of refinancing enquiries.
Residents of Victoria and Western Australia appear to be the hardest hit, with the average LVR for refinance enquiries sitting at 80 per cent in both states.
Additionally, Victoria has also seen the highest jump in average LVR among enquirers, from 58 per cent in March to 80 per cent most recently, suggesting many home owners in the state are struggling to reduce their home loan repayments.
A number of factors have contributed to a sharp rise in overall LVRs in recent months.
Foremost among the pressure points is property prices, which remain below what buyers would have paid over a year ago in some suburbs, changing the LVR if the asset is deemed to be worth less.
Home owners who switched to interest-only loans are also finding themselves in a tough spot if they now wish to remortgage, as they have not reduced the amount borrowed. Even a slight drop in property value will increase their LVR, potentially to a threshold where they’ll find themselves unable to access other financing.
First-time buyers who borrowed to the highest capacity when the cash rate sat at the historic low of 0.1 per cent qualified for much larger loans than they would receive today. With little time to have made an impact on the amount of their loan, they are struggling to get the leverage they need to refinance.
And with lenders now including items such as Buy Now Pay Later and student debt when assessing buying capacity, the equation for those who took out a mortgage prior to these changes coming into effect could be significant.
Compare Club head of research and insights, Kate Browne, said this data shows “just how financially stretched many Aussie households are right now”.
“Even if we’re close to the peak of cash rate rises, that’s cold comfort to the thousands of mortgage holders stuck on a rate of 7 per cent or higher,” she remarked.
“It’s doubly disheartening for those people who see rates advertised at 1 or 2 per cent lower than they’re currently paying, but their higher LVR or other serviceability issues are stopping them from lowering their home loan repayments,” Ms Browne added.
She encouraged borrowers to still remain positive, with options even with a high LVR.
Ms Browne suggested those struggling with mortgage payments to have a frank conversation with their bank.
“Banks really don’t want to have to repossess your house, so they may offer you a slightly lower rate that can give you a bit of breathing room,” she said.
Adding, however: “It won’t be the best rate you can get, which is why engaging a broker as early as possible can really help.”
“They’ll have access to lenders you won’t find on the high street and will know which lenders have a higher risk appetite or value properties differently from Australia’s big four banks,” she noted.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
You are not authorised to post comments.
Comments will undergo moderation before they get published.