AUSSIES FORCED INTO SELLING: Huge new rate blow for homeowners and buyers

PHOTO: One of the major banks is predicting house prices are set to fall a further 8 per cent this year, yet both homeowners and buyers have been dealt a further blow. FILE

A chilling warning has been issued that some Australians could be “forced into selling their homes” after a regulator refused to budge on a key issue influencing bank’s interest rates decisions.

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The Australian Prudential Regulation Authority (APRA) has refused to lower its buffer and will continue to insist that banks add 3 per cent on top of the prevailing interest rate when assessing mortgage applications.

The move not only hits the average new homebuyer, who will miss out on $21,000 in extra borrowing power according to Canstar research, but it means homeowners could also be trapped in “mortgage prison”.

The Finance Brokers Association of Australia (FBAA) said the announcement by APRA that the current serviceability buffer would be maintained makes it even harder for mortgage holders to refinance and negotiate a better rate.

Current homeowners could be trapped in mortgage prison by APRA’s decision. Picture: NCA NewsWire / David Swift

FBAA managing director Peter White said the buffer – which is added to a lender’s interest rate for loan assessment purposes – means that many borrowers who can afford the interest rate of the day or even a little higher, are being unfairly prevented from refinancing.

“More borrowers are becoming mortgage prisoners locked into a situation where they can’t access a better deal because they don’t meet the inflated assessment rate,“ he said.

“Others may be forced into selling their homes because the excessive buffer rate holds them prisoner to their current lender as rates rise.

“A 3 per cent buffer was appropriate in the past because interest rates were at an all-time low and were always going to rise significantly, and this protected both the banks and the borrowers, but we can’t live in the past and a buffer of 1.5 to 2 per cent is far more appropriate today and in the near future.”

Finance Brokers Association of Australia managing director Peter White. Picture: Supplied

Interest rates have been predicted to peak at 4.1 per cent in the coming months before being slashed again in 2024 and 2025.

Yet, the FBAA questioned whether APRA is potentially “signalling to the market that there is another 3 per cent rise to come, because there is no other reason to keep borrowers captive”.

Mr White said it wasn’t the fault of Australian consumers that interest rates have jumped so quickly, but they are the ones being penalised.

“It’s time borrowers stopped paying the price for the rapid rise of rates,” he said.

“The FBAA was predicting the rise well before the RBA acted but at the time many didn’t believe us. Rates should have been managed better and raised in smaller increments over a longer time period.”

He called on APRA to reassess the buffer rate regularly “but not less than every two years to ensure they are fit for purpose in the market they are representing now and in the near future.”