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The FBAA is calling on APRA to review its decision to maintain a 3% loan serviceability buffer for mortgages, stating it’s creating more “mortgage prisoners” as interest rates continue to rise.
The 3% buffer is added to a lender's interest rate for loan assessment purposes, and the FBAA argues that it is locking more borrowers into their current situations, unable to access better deals.
“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,” said FBAA managing director Peter White (pictured above). “Others may be forced into selling their homes because the excessive buffer rate holds them prisoner to their current lender as rates rise.”
White said many borrowers who could afford the interest rate of the day or even a little higher were being unfairly prevented from refinancing as a result of the 3% buffer, adding that a buffer of 1.5% to 2% was more appropriate in today's market.
“A 3% buffer was appropriate in the past because interest rates were at an all-time low and were always going to rise significantly, and this protected both the banks and the borrowers, but we can’t live in the past,” he said.
APRA on Monday that the 3% buffer will remain in place due to the potential for further interest rate rises, high inflation, and risks in the labour market. John Lonsdale, APRA's chair, stated that the current macroprudential policy settings remain appropriate based on the current risk outlook but “are not set in stone.”
“The events of recent years have emphasised that conditions can change rapidly,” said Lonsdale. “We continue to closely monitor the outlook for credit growth, asset prices, lending conditions and financial resilience.”
The FBAA also questioned whether APRA is potentially “signalling to the market that there is another 3% cent rise to come, because there is no other reason to keep borrowers captive.”
“It’s time borrowers stopped paying the price for the rapid rise of rates,” said White. “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.”
White also called on APRA to reassess the buffer rate on a regular basis, “but not less than every two years to ensure they are fit for purpose in the market they are representing now and in the near future”.
