Refinancing struggles doubled over 6 months

A personal finance marketplace has said the number of home owners struggling to refinance due to serviceability issues has jumped to 30 per cent.

Personal finance marketplace Compare Club has revealed the number of home owners struggling to refinance due to serviceability issues has doubled from 15 per cent to 30 per cent in under six months.

The organisation said the number of refinancing inquiries from mortgage holders with a loan-to-value (LVR) ratio of 90 per cent or more was at the highest level since interest rates began to rise.

Compare Club’s analysis of over 49,000 refinancing queries revealed a dramatic jump in inquiries by those with higher LVRs from March 2022, before the Reserve Bank of Australia (RBA) raised the cash rate by 4 per cent, to June 2023.

In March 2022, those with an LVR of over 90 per cent made up 14.46 per cent of refinance inquiries, which jumped to 53.25 per cent in June 2023, with those inquiring about refinance with an LVR of between zero and 59 per cent dropping from 62.16 per cent to 29.39 per cent.

The marketplace said the rising number of borrowers with an LVR of over 80 per cent was due to many being locked into a “mortgage prison”, unable to access lower interest rates and stretching their household budget to breaking point.

Compare Club said several additional factors could influence rising LVRs, which included:

  • Dropping property prices
  • Home owners switching to interest-only loans
  • Reduced borrowing capacity due to lenders now including items such as buy now, pay later and student debt when assessing loan applications

The marketplace provider said Victorian and Western Australian borrowers were struggling the most, with the average LVR for refinance inquiries sitting at 80 per cent in July 2023, having risen from 58 per cent and 67 per cent from March respectively.

Compare Club’s head of research and insights Kate Browne said: “The sharp spike in home owners with a high loan-to-value ratio in just a few months really shows just how financially stretched many Aussie households are right now and 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.

“It’s doubly disheartening for those people who see rates advertised at 1 or 2 per cent lower than what they’re currently paying, but their higher LVR or other serviceability issues are stopping them from lowering their home loan repayments, but that doesn’t mean they should despair.”

Ms Browne said “engaging a broker as early as possible can really help” as borrowers search to break free of their mortgage stranglehold.

She said: “They’ll (brokers) 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.

“There’s no way to sugarcoat this data for the 800,000 Aussies who have already rolled off or are about to roll off a cheap fixed-rate loan but there are steps you can take to reduce some of the financial pain and with property prices in flux, some of those struggling today may be able to access better rates tomorrow.”

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