Lendi has revealed Australian homeowners are facing ‘mortgage prison’ as interest rates continue to rise and house prices fall.
A growing number of mortgage borrowers are concerned as their property decreases in value along with their asset’s equity. This is where so-called ‘mortgage prison’ occurs - as a property’s LVR drops below the 80% threshold, meaning the owner has less than 20% equity in their home.
Lendi Group CEO David Hyman (pictured above) said lenders rarely refinance a loan above the 80% LVR mark without adding on costly Lenders Mortgage Insurance (LMI).
“This leaves mortgage holders locked in with their current lender, often stuck on an uncompetitive rate after their fixed rate term expires,” Hyman said. “This situation is leaving Aussies paying higher mortgage repayments on properties that are worth less, with those who purchased at the top of the market with 5% or 10% deposits most at risk.”
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Hyman said the current rising rate market is creating a perfect storm for mortgage holders who are making higher mortgage repayments on homes that are now worth less.
“Paying off a mortgage locked in prison is another emerging financial burden every day Aussies could now be facing as cost-of-living pressures continue to pile up,” he said.
“Following years of super low interest rates, we’ve seen more people jump into the housing market looking to get a foot up, many with just 5% or 10% deposits. It’s these buyers that are now at extreme risk of being left in mortgage prison by being locked into an uncompetitive rate and unable to refinance with a new lender.”
Hyman said typical of a rising rate market when interest rates increase, a buyer’s borrowing capacity falls lower, meaning the buyer might have qualified for a loan on their home prior to May this year, but they might not meet the lender’s 3% borrowing buffer now.
“This once again leaves them with nowhere to go because if rate rises move once again, it’s likely we’ll see even more Australians in this difficult situation which is hinged on housing prices,” he said. “This comes as Lendi data reveals half a billion in ‘lazy loans’ are left untouched by their owners over the past five years.”
Hyman said this figure accounted for 25% of the two trillion outstanding in the mortgage market across Australia.
“Our advice to any homeowner who hasn’t yet reviewed their situation is to reach out to your broker to discuss your options before you find yourself without any,” he said. “By acting early and taking an active role in your mortgage, you can equip yourself with the best advice and information to prepare for what’s ahead.”
