Data from Lendi Group found three out of every ten Aussie mortgage holders are now able to refinance who couldn't before, potentially saving over $700 a month or $9,000 a year.

However, Lendi research from two weeks ago also found a bulk of those trapped in a 'mortgage prison' were recent first home buyers above an 80% loan-to-value ratio, which means they can't refinance anyway lest they want to pay lenders mortgage insurance again.

Westpac and its subsidiaries (including Bank of Melbourne and St George) have reduced serviceability tests for certain applicants looking to refinance, making it easier to get accepted.

Since late 2021, APRA has recommended banks apply a 3% serviceability buffer, meaning to qualify for a loan at 5% p.a, borrowers needed to demonstrate they could repay a loan at 8% p.a.

However, Westpac announced in May that certain refinancers could qualify for a special 'modified serviceability assessment rate,' if their credit history was strong and they were refinancing to a loan with lower repayments.

Most borrowers will need a credit score over 650, and no arrears or hardship in the last 12 months to qualify for the reduced buffer.

Travis Tyler, Chief Product Officer at Lendi Group, welcomed the trend, calling it a 'lifeline' for struggling borrowers.

"Our brokers have already re-engaged with customers, who previously were locked out of better rates, since some of the big four have offered this chance, as well as many of Australia’s biggest regional lenders. It’s a potential lifeline for those who have failed the standard '3% serviceability' stress test when refinancing," Mr Tyler said.

He said this could increase borrowing capacity by as much as 20%.

"Currently, a mortgage holder with the average Australian mortgage of $600,000 at a 5% interest rate, would be assessed on whether they could afford repayments at 8% or $4,630 per month," Mr Tyler said.

"In contrast, a serviceability test at 6% which some lenders are offering, would bring that test down to $3,685 a month, therefore being serviced at 20% less, or a $765 difference per month, based on a 25 year loan term."

See Also: Credit score calculator

Will the serviceability buffer come down?

As the cash rate increased, there were calls to bring down the buffer, with a few property pundits feeling it was too great a constraint on credit flow.

Commonwealth Bank CEO Matt Comyn has been among those to call on APRA to revisit the 3% buffer.

Mr Comyn said CBA would seek APRA's approval to relax serviceability criteria on borrowers whose builders have gone under.

APRA has stood firm though, with Chairman John Lonsdale writing to the banks after Westpac's announcement, making it clear the buffer should only be cut in 'exceptional' and 'limited' circumstances.

"APRA is aware that some banks have recently made changes to their exceptions processes to support borrowers who may be facing challenges in refinancing with another lender," Mr Lonsdale's letter read.

"It is important that exceptions are used in a prudent and limited manner, so as not to undermine the intent of the core policy.

"The serviceability buffer provides a contingency for rises in interest rates over the life of the loan, as well as for any unforeseen changes in a borrower’s income or expenses."

It's estimated serviceability exceptions apply to around 2 to 3% of home loans.

In a statement on Wednesday morning, the Council of Financial Regulators - consisting of the RBA, Treasury, and ASIC - backed APRA maintaining the buffer.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
Principal & Interest
Featured Online ExclusiveUp To $4K Cashback
  • Immediate cashback upon settlement
  • $2,000 for loans up to $700,000
  • $4,000 for loans over $700,000
5.99% p.a.
5.90% p.a.
Principal & Interest
Featured Apply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.14% p.a.
6.16% p.a.
Principal & Interest
Featured Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Picture by Miguel Á. Padriñán on Pexels

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