As millions of borrowers roll off their fixed rates, many are seeking to refinance for a better deal. However, some borrowers are facing hurdles. This month we ask... What have been the biggest challenges you’ve found when refinancing?
Complex and drawn-out
BETWEEN SERVICEABILITY issues, poor quality consolidations showing multiple late payments on credit cards etc, outgoing lenders having up to 30 business days to process discharges, and crudely competitive internal retention teams, there is a lot that can go wrong in the current market for refinances.
As refinances have become a key income driver for lenders in the last 12 months, they have naturally become more complex and drawn-out in nature.
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We have seen a few lenders give additional rate discounts to keep existing clients at the eleventh hour, which has led to deals falling apart as well. Due to rates going up we also are doing a higher amount of debt consolidations using household equity and due to this increase we’re also seeing a higher number of problem files showing late payments and arrears, all part of the challenge of course.
Dean Naylor, broker, Mortgage Choice Springwood
Managing expectations
WE ARE having to really manage client expectations because they cannot borrow as much as they used to.
Borrowers have not adjusted fully to the new ‘normal’. That is, they need to realise that interest rates in the 5–6 per cent bracket aren’t high, they’re normal.
Some borrowers are just not getting that – although prices are increasing in Sydney and other areas like Brisbane and Perth – their borrowing capacity has decreased.
People can no longer service the debt they have on paper, but they are servicing in practice, which doesn’t make sense to them. This means they are stuck with their current lenders and we can only reprice these right now and will revisit them next year.
This applies to a lot of people coming off their late 1 per cent mortgages.
Louisa Sanghera, Director and principal broker. Zippy Financial
A lot of shocks
THERE’S BEEN a lot of shocks. I’ve had clients who enjoyed strong servicing previously and are now facing a serviceability squeeze. This included them having to consolidate/reduce other debts/credit card limits.
The timing of rate changes has posed a challenge. Although most clients provide documents quickly, some missed the boat in a rising rate environment and their serviceability reduced monthly, leaving them as mortgage prisoners.
Some ‘out of RBA cycle’ rate increases from lenders added to this challenge along with communicating with clients as to why rates changed plus timing of applications/approvals/docs/settlements.
The APRA buffers have also been a great challenge, however, there’s now an opportunity to encourage lenders to review their serviceability buffers, which is something we’ve been seeing lately, which should be helpful to clients.
James Brett, principal and mortgage & finance specialist, Truly Finance
A variety of challenges
Serviceability – Clients are now rolling off their fixed rates and can no longer service loans with the bank’s extra buffer they include.
Hidden fees – Some banks only cover valuations up to a certain amount so if the client has to cover the difference it may not be worth the move to save on the extra discount.
Too many inquiries on credit file – The more inquiries you have the lower the score so, if you have the cash pay for each rather than using these types of facilities.
Undisclosed debt – The client hasn’t been completely transparent on their expenses and loans. It’s better to lay everything on the table at the start.
Too many options – Clients can get analysis paralysis with the choice of banks. Always best to get a gauge from your broker which bank is doing things the best and has best turnaround time, processing, etc.
Sandy Kelso, Director, Kelso Finance
What do you think? Let us know in the comments below!
