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15% of FHBs facing ‘mortgage prison’: Lendi

by Annie Kane11 minute read

More than 15 per cent of first home buyers have a loan-to-value ratio over 90 per cent and could find it difficult to refinance, according to Lendi Group data.

Data from the mortgage broking group has revealed that around 15 per cent of Australian first home buyers (FHBs) rolling off their low fixed-rate periods could become ‘mortgage prisoners’ in the near future, as they have high loan-to-value ratios (LVRs) and may find it difficult to refinance.

According to Lendi Group figures, the lowest market rates are sitting at 5.18 per cent for variable mortgages and 5.29 per cent for fixed-term loans.

However, as of May 2023, 25 per cent of all FHBs were paying a fixed rate of 3 per cent or less, while 21 per cent were on a fixed rate of 2.5 per cent and below, having taken advantage of the emergency-low rates during the pandemic.


The issue has been coming to a head recently, as these borrowers roll off their super-low fixed-rate terms (set during the pandemic) and onto a revert rate, which will likely carry the full 11 rate increases.

Compounding the issue is the fact that a high proportion of FHBs have high LVRs, with 11.4 per cent having an LVR of 90–95 per cent and a further 4 per cent having an LVR over 95 per cent.

Indeed, the brokerage group found that around 11 per cent of FHBs paying a fixed-rate loan rate of between 1 and 2 per cent have an LVR over 95 per cent, with many having taken advantage of the government’s Home Guarantee Schemes (which only require a deposit of 5 per cent).

These borrowers would likely now face a high revert rate, as lenders rarely offer high discounts to sub-80 per cent LVR borrowers and may not be able to pass higher serviceability buffers.

Lendi Group chief executive David Hyman commented: “Our Lendi data shows the average first home buyer fixed-loan mortgage is $557,000. First home buyers with this loan size over a 25-year term who are rolling off a 3 per cent rate are staring down a $1,242 jump in their repayments every month or $14,907 over the year. For those on a fixed 2.5 per cent rate, they can expect a jump of $1,384 every month or an additional $16,617 in repayments over the year.

“For young Australians who took the government’s First Home Buyers scheme the numbers are even more alarming, with more than half of those on an LVR above 95 per cent, still on a fixed rate below 3 per cent, leaving them exposed once their fixed term ends, with little room to move.

“The reality is, for home owners who have an LVR above 90 per cent, it does become more difficult to refinance.”

As such, Mr Hyman flagged the important role that brokers can play in supporting these ‘mortgage prisoners’.

“Our brokers are experts at navigating Australians through this process,” he said, highlighting that by not accepting a revert rate and finding a more competitive offer, FHBs could save thousands of dollars over a year.

He flagged that recent moves by lenders to drop serviceability buffers would also help more FHBs refinance, if they know where to look.

“The changes provide new options for brokers to re-engage with these home owners and explore their options to secure a better rate,” Mr Hyman continued.

“For those who do have a higher LVR and are finding it harder to refinance, a broker can look at [their] total income situation and debt to income ratio, to help [them] meet a lenders’ serviceability requirements.”

The Lendi Group CEO noted that brokers are also increasingly helping borrowers with debt consolidation, which can lower repayments, increase surplus income, and help keep borrowers “out of mortgage prison”.

[Related: Mortgage holders are ‘on the brink’, FBAA warns]

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