Mortgage Prison

“Home isn’t a place, it’s a feeling.” ~ Anon

Sadly, as interest rates continue to soar and house prices fall, Lendi recently revealed that one in 10 Australian homeowners face being locked into a ‘mortgage prison.’

Not a great place to be in, nor a great feeling to have.

An estimated 10 to 15 percent of borrowers could become ‘mortgage prisoners’ within the coming months and find it difficult to refinance or no longer qualify for their loans. This due to reduced borrowing capacity and higher loan-to-value ratios, predicts leading investment and advisory group, Jarden.

The change in rates is estimated to have wiped more than 20 percent off of the average borrower’s lending capacity, meaning the loan they once qualified for, may be out of reach. At the same time, the falling market could make it less attractive to sell.

Lendi Group Chief Executive, David Hyman, claims fewer people are looking to borrow as much as they are allowed, with the looming threat of more rate hikes.

“The fact that prices have increased so much means the (number of) people being stuck because of their loan-to-value ratio, is not going to be a huge part of the market. In aggregate, people are not borrowing at the top of the curve. But there definitely is a segment, who sit in that bucket whereby it’s going to be harder for them to refinance, just because their borrowing power has decreased.

“Quite conceivably, consumers who took out a 60 percent loan-to-value ratio (loan) nine months ago, will find it difficult to refinance if they’re at the edge of their serviceability at that stage.”

Around 45 percent of homeowners fixed mortgages through the pandemic to take advantage of the record low interest rates. The vast majority of these agreements are set to expire in the coming year, with many expected to face a jump of around 3 percent.

According to Australian Bureau of Statistics data, refinancing activity hit a two-decade high in August, with the $18.878bn in new commitments primarily arising from owner-occupiers.

Jarden analysts are predicting property prices to fall between 15 to 20 percent through the downturn, which could cause an estimated two in five loans to slip to a loan value to home cost ratio of 80 percent, and a 9 percent move to a ratio of 90 percent. Furthermore, the firm believes first-home owners could be disproportionally impacted, as they generally purchase with lower deposits.

If you are concerned that you may be locked into higher mortgage repayments on a property that could be worth less, give FIA a call today. We can review and see if you can save. FIA has access to, and can open doors to competitive rates with over 70 major lenders. With us, you can rest assured that your financial future is in the best possible hands.

Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.***