Here’s our top 3 highlights from the month that was…
1. Mortgage Prisoners
The term ‘mortgage prisoners’ is used to describe customers who are locked into a home loan with a lender at an interest rate that is higher than current available market rates. A ‘mortgage prisoner’ can also be a customer who has rolled off a lower fixed interest rate and is now paying a higher variable interest rate.
A major reason for ‘mortgage prisoners’ inability to refinance has been the prudential regulator’s guideline of a 3 per cent buffer above the lending interest rate to meet repayments. A loan carrying a 5.5 per cent interest rate would therefore be assessed on the ability to make repayments at 8.5 per cent.
We have had 12 interest rate rises since May 2022, and more potentially on the horizon, which has made it more challenging for mortgage prisoners.
Lenders have started responding, by slashing serviceability buffers to make it easier for borrowers to refinance to as low as 1%.
Resimac Group, Westpac and their subsidiaries including St George Bank, Bank of Melbourne and Bank SA), AFG, Liberty.
2. Mortgage Loyalty Tax
The term “mortgage loyalty tax” refers to the difference in interest rate costs that existing borrowers pay as a result of lenders offering new customers lower rates on home loans.
According to the RBA, existing mortgagors typically pay 41 bps more on their mortgage than new customers.
New borrowers typically receive better offers than existing borrowers. This is why it’s so important that mortgagors review their loans regularly. We recommend that this is done at least once a year. Part of the review process is to identify opportunities for a better offer and weigh up the costs of refinancing to see if its in the best interests of the client, taking into consideration their goals and situation which may have changed.
3. Increased rents and more first home buyers
Apartment rents across Australia have increased six times faster than wages and house rents have climbed at triple the rate.
As a result, we have seen a peak in interest from first home buyers wanting to crunch their numbers and look at their situation with a view to getting into the market.
The NSW government will be making changes to first home buyer grants and assistance from 1st July, most notably the change to the First Home Buyer Assistance Scheme which will see the thresholds for stamp duty exemption increased. See below:
Existing homes
- Buy an existing home valued at less than $800,000, apply for a full exemption and pay no transfer duty.
- Buy an existing home valued between $800,000 and $1,000,000, apply for a concessional transfer duty rate. The amount will be based on the value of your home.