AFG brokers to help mortgage prisoners

Tens of thousands of ‘mortgage prisoners’ may now be able to refinance their home loans to more affordable interest rates, following the introduction of a new policy developed by Australian Finance Group Ltd (ASX:AFG).

AFG has today announced a new policy enabling its brokers to recommend home loans based on lending criteria that cuts the current 3 per cent serviceability buffer on lending assessments to 1 per cent – provided the customer is classified as a ‘mortgage prisoner’ and has met certain conditions.

Conditions include good repayment conduct on their existing loan and other liabilities and no adverse changes to their income or expenses over the past 12 months. The refinanced loan must also be the same amount over the same remaining loan term.

Lenders currently offering mortgages with a lower serviceability buffer include Granite, Liberty, and Westpac and its brands (Bank of Melbourne, St George Bank and BankSA). AFG Home Loans will also soon have an offering available, and many more lenders are expected to come on board to capture strong demand by brokers to offer their ‘mortgage prisoner’ customers a better interest rate home loan.

The term ‘mortgage prisoners’ is used to describe customers who are locked into a home loan with a lender at an interest rate that is higher than current available market rates. A ‘mortgage prisoner’ can also be a customer who has rolled off a lower fixed interest rate and is now paying a higher variable interest rate.

A major reason for ‘mortgage prisoners’ inability to refinance has been the prudential regulator’s guideline of a 3 per cent buffer above the lending interest rate to meet repayments. A loan carrying a 5.5 per cent interest rate would therefore be assessed on the ability to make repayments at 8.5 per cent.

Although mortgage refinance applications will still be assessed under the 3 per cent serviceability buffer, a modified buffer can be applied under ASIC’s Responsible Lending guidelines which state that it may be reasonable to take fewer steps if new financial obligations can reduce a customer’s repayments and improve their financial position.

AFG Head of Sales and Distribution Chris Slater said AFG had developed the new policy to help brokers act in their customers’ best interests, while still meeting Responsible Lending criteria.

Mr Slater said the 3 per cent buffer was appropriate in the past because interest rates were at historic lows and steep increases were inevitable.

“Given the significant rises over the past year, a 1 per cent buffer is more appropriate, hence the development of our new policy to help brokers servicing Australians who are trapped in mortgage prison,” he said.

“At the heart of this policy is the ability to enable our brokers to facilitate loans with more favourable rates, ultimately saving their customers money and putting them in a better financial situation.

“AFG is committed to creating a fairer financial future for all Australians. By developing this policy our brokers can provide their customers with choice for an appropriate loan product, therefore helping release themselves from the unfair trap of mortgage prison.”

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