Mortgage brokers are fighting against the tide of regulation that is stripping borrowers of their options and leaving Aussies unable to find a better deal on their home loan.
Recent news of UK borrowers being labelled “mortgage prisoners” due to tougher regulations has hit a nerve with the Australian mortgage broking community.
My predictions were correct: Australian brokers have confirmed they are dealing with a similar problem.
For those that missed the piece on Mortgage Business, it highlighted that tens of thousands of “mortgage prisoners” in the UK are paying high mortgage rates and are unable to switch to a better deal due to regulations around affordability, income and expenses.
The UK regulator, the Financial Conduct Authority (FCA), has confirmed that around 30 per cent of British borrowers have been unable to refinance to a cheaper rate. The FCA is now in the awkward position of trying to help victims of its own regulatory actions.
“The mortgage market is one of the largest financial markets in the UK and there have been significant changes to the market since the financial crisis in order to ensure that we do not return to the poor practices of the past,” the FCA’s Christopher Woolard said.
“For many, the market is working well with high levels of consumer engagement. However, we believe that things could work better with more innovative tools to help consumers. There are also a number of long-standing borrowers that have kept up to date with their mortgage repayments but are unable to get a new mortgage deal. We want to explore ways that we, and the industry, can help them.”
The regulator found that a number of long-standing customers would benefit from switching away from a reversion rate but cannot, despite being up to date with payments.
Aussie mortgage professionals believe we’re dealing with an even bigger issue than the UK. Our regulators just haven’t admitted it yet. And they’re a long way from offering help.
“It is happening now in Australia as many clients are unable to move to a better rate even if they want to refinance their loan on a like-to-like basis,” one reader who goes by the name of Moey commented.
“I have done few refinances wherein few clients have saved from $6,000 to $ 10,000 per year which is after tax payments. More of them are unable to refinance due to new regulations and the way the living expenses and assessment rates are used, which is way out of reality.
“This has to stop. Australia is fast-tracking to recession due to [the] construction industry [that] is getting affected and many of new borrowers are forced to stay in rental accommodation. This will increase the rental across the country very soon mainly due to shortage of new houses.”
Another broker commented that the emergence of mortgage prisoners is already happening in Australia, saying: “The other day, I told clients who were $18,000 ahead in their loan that they could not afford to switch lenders for a lower rate.”
One reader who goes by the username Battler Bill said: “It’s already a massive problem here. The numbers quoted for the UK would be an understatement in the Australian market. In [the] UK, it is mostly people from pre-GFC. In Australia, it’s people within [the] last couple of years.”
Another reader, Simmo, said: “I am already seeing this happen in Australia. Customers with years of perfect repayment history being unable to refinance to a cheaper rate. It’s not widespread yet, but it is growing.”
Earlier this week, I moderated a compliance panel at The Adviser’s New Broker Academy. The most common questions from the audience — all of whom were brokers in their first two years — were around customer living expenses, HEM and the frustrations around trying to deliver good customer outcomes in an environment where red-taped lenders won’t play ball.
Looking at the flow of mortgages from the third-party channel, it’s clear that the big four banks are on the back foot as brokers look to the challenger banks and alternative lenders for solutions.
The latest AFG Competition Index released this week shows further evidence of what the major aggregator is calling a “structural shift in the Australian lending market”, as non-major lenders again seize market share from the big four.
Non-major lenders have seen their overall market share of new loans hit a record 40.97 per cent in May 2018.
The big four market share for refinancing deals through AFG brokers has fallen from 63.45 per cent in January to 53.37 per cent in May, while the non-majors have been able to gain ground over the period.