With Australia’s Soaring Interest Rates, ‘Mortgage Prisoners’ Are Trapped in Crushing Repayments

Must Read

With Australia’s interest rates at record highs, many Australians feel the financial pinch and find themselves in a difficult situation. Dubbed “mortgage prisoners”, these individuals have been unable to renegotiate their mortgages due to the soaring interest rates.

The coronavirus pandemic has drastically changed the housing market, and many Australians have to take on mortgages with higher interest rates. This growing cohort of pandemic-era homebuyers cannot refinance because they no longer meet lenders’ standards after recent rate increases.

The executive director and head of research at K2 Asset Management, George Boubouras, said, “There is without a doubt a big challenge for new mortgage holders over the past three years.”

“Many are mortgage prisoners, and a mortgage prisoner cannot refinance because of the serviceability buffers.”

Between 2019 to 2021, when interest rates were at historic lows, lenders put stringent serviceability tests for home loans in place.

These tests assessed the applicants’ ability to make repayments at 2.5 percentage points above the lending rate, a buffer that has recently been increased to 3 percentage points.

Since May last year, Australia’s mortgage rates have risen by 3.5 percentage points due to the Reserve Bank’s rate-hiking cycle. This has caused further financial strain on those unable to refinance their existing loans because of stringent serviceability tests put in place by lenders.

It remains to be seen when these higher interest rate conditions will ease and when borrowers can expect relief from their financial burden. Only then will these mortgage prisoners have a choice but to find ways to navigate the current economic climate and ensure they can keep up with repayments.

With interest rates soaring and financial markets volatile, many of these mortgage holders feel trapped in a difficult situation – unable to refinance their mortgages due to higher loan payment requirements and stricter criteria from lenders.

- Advertisement -spot_img
- Advertisement -spot_img
Latest News
- Advertisement -spot_img

More Articles Like This

- Advertisement -spot_img