Brokers can help the thousands of people labelled 'mortgage prisoners' by directing them to non-bank lenders, is the call from an industry association.
Mortgage prisoners are borrowers unable to refinance to a lower interest rate due to changed lending criteria by the banks.
The Finance Brokers Association of Australia (FBAA) has said that going to non-banks is the way to overcome this.
FBAA executive director Peter White said the government should also step in and push banks to be realistic with their modelling.
He revealed he personally brought up the issue with federal treasurer Scott Morrison when the two caught up at a recent lunch.
White said 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 the extent of the increase has led to a situation where borrowers who are already paying a mortgage are being rejected for loans that actually reduce their repayments.
He said, “It’s madness. Someone wants to refinance to pay a lower rate yet the bank adds an extra 4% to the interest rate and decides the borrower can’t afford to pay less."
He said while he understands the need for a lender to add a safety net to the prevailing interest rate, they are now effectively doubling the rate to a level where the borrower can’t meet the new lending criteria.
He added, “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 White, who predicts the banks may start to set an even higher rate.
He said the situation only reinforces the value of the expert advice that finance brokers provide and has urged brokers to be proactive in the space.
He said, “Many Australians are not even aware of non-bank lenders, let alone the difference or that they are not under some of the same regulatory oversight, so we must educate and help them. We know the banks won’t!”
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