Mortgage brokers are experiencing varying levels of difficulties when securing mortgage financing due higher rates and increased levels of refinancing, brokers and research suggest.
With PEXA data showing more than 800,000 borrowers rolling off low fixed interest rates this year, Australian Broker talked to three brokers about what they have experienced and the strategies they’ve employed to weather the storm.
The Equifax Mortgage Broker Pulse Survey 2023, conducted in May, polled 569 brokers and 416 consumers to assess the industry's response to growing constraints.
Findings revealed that 38% of brokers attributed the rising interest rates as the primary factor impacting loan eligibility and causing significant delays in application approvals within the past year.
Additionally, 31% expressed concerns about lender service level agreements, while 11% cited affordability constraints stemming from inflation and stagnant wages as contributing to delays.
Gordon MacVicar (pictured above left), owner of Mortgage Choice Peregian Beach, said the need to do refinances had not been there with existing clients because they had been repricing them every six months with their existing bank.
MacVicar is among the cohort of brokers (16% according to the Broker Pulse survey), who have prioritised completing more borrowing capacity assessments to remain competitive.
“We’ve had someone full time just repricing clients and we found that the existing lenders – up until about the past three to four weeks – have been really competitive in the repricing,” MacVicar said.
However, MacVicar’s team has found that “existing lenders not coming to the party”, which has made it difficult to price some clients locked in ‘mortgage prison’.
MacVicar noted that some clients with loan balances of $400,000 were finding it challenging to refinance even with the reduced 1% buffer imposed by some lenders.
However, MacVicar also highlighted that clients who focused on purchasing properties rather than refinancing were faring better. While they might be only able to borrow slightly less than initially expected, they could still enter the market.
“It’s the mum and dads on $60,000 and $50,000 incomes. They're the ones that are struggling to refinance their current home loans,” MacVicar said.
MacVicar said the sudden change from lenders he had experienced could be put down to a variety of factors.
“Cashbacks have ended, their cost of funding has increased and I think they can't continue to offer their back book what they're offering new-to-bank clients. And I think they're having to see a shift back to maintaining margin,” MacVicar said.
“If they're repricing their entire back book at the same rate as what their new-to-bank clients are getting, it's not going to be very profitable for lenders.”
Worrying about things under your control
For Amol Khuntale (pictured above centre), director of ASK Financials which specialises in the investor space, he has relied on “building an expert team” that upholds a set of principles.
“Whether it's their first or tenth property, the decision to fix the loan or keep it variable can add stress to mortgage repayments due to the uncertainty in the market,” Khuntale said. “People are unsure what to make of all of it and it’s scary when you have skin the game.”
Khuntale said his mantra that he told clients, other brokers, and himself was that one should only worry about what was under their control.
“From interest rates to serviceability buffers, these things are out of your hands. Don’t worry about it and focus on the risks you can manage.”
Crucially however, Khuntale found many of his clients are more experienced and are used to interest rates that sit around the historical average of around 4% to 5%.
“Interest rates should not be a part of your strategy as an investor. For first home buyers, I completely understand the stress but not for investors as it’s not part of your strategy,” said Khuntale.
Relying on the panel
Elijah Barrett (pictured above right), one of the youngest brokers in Mortgage Choice’s national network, said he was lucky in the sense that Mortgage Choice featured over 30 lenders on its panel, making securing finance for any customer “never really an issue”.
“Obviously in this current environment, it can mean that not every client is going to your first tier or second tier lenders but there is still normally always an option for our clients,” Barrett said.
Barrett said the main consequence of rising interest rates was a decrease in borrowing capacity, and the impact was “greatly evident”, and sometimes to “large degrees”.
“We try our best to fast track our applications so that they are serviced at current servicing levels, prior to a potential rate increase the following month which places some level of urgency on all applications,” Barrett said.
Barrett said his clients, and especially first homeowners, sometimes believed they would be able to borrow up to a certain amount and were “really shocked when banks pre-approved them for $50,000 to $100,000 less than expected.
“It is important to remind our clients that banks will not put them in a position that they will default on the loan, as that becomes their liability, so what they’ve been pre-approved for is what they can actually afford albeit whether it is what they were hoping for or not,” Barrett said.
What are you doing to overcome financing difficulty? Comment below.
