‘Prepare for 9 per cent home loan rates’ – Mortgage brokers warn

‘Captive’ borrowers should be prepared for an average variable home loan rate of close to 9 per cent, mortgage brokers have warned.

Mortgage holders may be forced to sell if they can’t refinance to a lower rate. Picture: Gaye Gerard.

Borrowers should be prepared for an average variable rate of close to 9 per cent – this is the logic behind keeping the current loan assessment buffer in place, according to the head of the Finance Brokers Association of Australia (FBAA).

FBAA managing director Peter White has slammed Monday’s move by the Australian Prudential Regulation Authority (APRA) to maintain its current assessment buffer of 3 per cent despite recent hikes bringing the cash rate close to the long term average.

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Mortgage holders could be trapped in their loan as interest rates rise.

Mr White said while a 3 per cent buffer made sense when interest rates were at record lows and thus likely to rise significantly, a smaller buffer was more appropriate in the current environment.

“We can’t live in the past,” Mr White said.

“A buffer of 1.5 to 2 per cent is far more appropriate today and in the near future.”

He questioned whether APRA was potentially “signalling to the market that there is another 3 per cent rise to come.”

“There is no other reason to keep borrowers captive,” he said.

Canstar puts the average variable interest rate for owner occupiers paying principal and interest at 5.92 per cent.

A further 3 per cent of interest rate hikes would see this rise to almost 9 per cent.

This is the amount of interest an existing borrower must now prove they can afford to repay if refinancing to the average variable rate.

Rising rates alongside inflation has made budgeting a challenge.

If they can’t afford repayments at this rate, they could be stuck paying their current rate even as the cash rate continues to climb.

“Many borrowers who can afford the interest rate of the day or even a little higher, are being unfairly prevented from refinancing,” Mr White said.

“More borrowers are becoming ‘mortgage prisoners’, locked into a situation where they can’t access a better deal because they don’t meet the inflated assessment rate.”

“Others may be forced into selling their homes because the excessive buffer rate holds them prisoner to their current lender as rates rise.”

He said the move meant Australian consumers were being penalised as a result of the RBA’s change in direction whereby it hiked rates much earlier and faster than it had previously indicated.

FBAA managing director Peter White.

“It’s time borrowers stopped paying the price for the rapid rise of rates,” he said.

“The FBAA was predicting the rise well before the RBA acted but at the time many didn’t believe us. Rates should have been managed better and raised in smaller increments over a longer time period.”

APRA’s decision comes one week before the next cash rate announcement where it’s expected interest rates will rise another 25 basis points to 3.6 per cent.

Canstar estimates that monthly repayments of an average loan of $500,000 being paid over 30 years will rise from $2,103 in April 2022 to reach $3,154 by March 2023, representing a total increase of $1,051 a month since the current rate rise cycle began last year.

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Originally published as ‘Prepare for 9 per cent home loan rates’ – Mortgage brokers warn