A Coalition-led inquiry had flagged the idea of lowering the buffer in certain cases for first home buyers.<\/a><\/p>\n“Higher buffers strengthen financial system resilience, but can restrict refinancing options, particularly in a rising rate environment,” Fitch Ratings said.<\/p>\n
“Conversely, more flexible buffers improve access to credit, but increase credit risk, especially for marginal borrowers.”<\/p>\n
Fitch Ratings notes that while this 3 per cent buffer requirement applies to banks, non-bank lenders adopted a more flexible approach from 2021, with most reducing their serviceability buffer to 2 per cent and subsequently some reducing it further still for like-for-like refinancing.<\/p>\n
“This two-tiered market has persisted, attracting marginal borrowers who may not meet the stricter criteria set by banks to non-bank lenders, becoming a feature of Australia’s mortgage market and shaping origination volume and the risk profiles of borrowers unable to pass serviceability assessments with a 3 per cent buffer,” it said.<\/p>\n
“The resulting impact is evident in the context of the cumulative 4.25 per cent increase in Australia’s cash rate during 2022 and 2023, which, in practice, led to the emergence of a small cohort of borrowers anecdotally referred to as ‘mortgage prisoners’.<\/p>\n
“These borrowers are unable to refinance to lower-rate loans due to their inability to meet the higher serviceability assessments.”<\/p>\n
Fitch notes that in anticipation of this issue, the National Consumer Credit Council introduced a targeted ‘like-for-like’ concession in 2019, allowing eligible ‘mortgage prisoners’ to refinance loans at a lower interest rate, provided the new repayments were lower and performance conditions were met.<\/p>\n
The concession applies a reduced serviceability buffer, commonly 1 per cent, though it can be lower, determined on a case-by-case basis.<\/p>\n
“We adjust foreclosure frequency to reflect the increased credit risk when assessing mortgage portfolios containing like-for-like refinanced loans using lower buffer rates,” Fitch said.<\/p>\n
“This includes a 10 per cent adjustment to loans that do not meet a 2 per cent serviceability buffer, but pass with a 1 per cent buffer, and a 20 per cent adjustment for mortgages that cannot pass a 1 per cent buffer.”<\/p>\n
Easing lending rules would make it easier for first home buyers, but would it create financial instability? I answer that question here:<\/p>\n","protected":false},"excerpt":{"rendered":"One of the ways lenders are restricted from allowing Australians to take on too much debt is that,…\n","protected":false},"author":2,"featured_media":523850,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3091],"tags":[3384,3377,2257,51,14408,5193,31971,2441,31970,31969,16,15,2413],"class_list":{"0":"post-523849","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-asx","9":"tag-australian-dollar","10":"tag-bitcoin","11":"tag-business","12":"tag-dow-jones","13":"tag-live-blog","14":"tag-live-update","15":"tag-markets","16":"tag-nyse","17":"tag-share-market","18":"tag-uk","19":"tag-united-kingdom","20":"tag-wall-street"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115427216217207070","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/523849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=523849"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/523849\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/523850"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=523849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=523849"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=523849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}