What’s taking the government so long to fix mortgages?

With house prices falling, the official cash rate having hitched up 2.50 per cent in just six months (to a nine-year high) and mortgage rates continuing to rise — all eyes are on mortgage affordability.

Brokers have been busy helping borrowers understand their repayment changes, and refinance in record numbers. But, for a growing number of borrowers, refinancing may not be an option.

Whether it’s “mortgage prisoners” finding that their loan-to-value ratio (LVR) has risen amid house price falls, cutting them off from many options — or higher buffers taking them out of serviceability — there is a growing concern that some borrowers will be left paying higher rates due to a lack of options.

Some of these borrowers will likely be paying a “loyalty tax” — with their repayments higher than they would be if they were able to access some offers currently in market. Indeed, according to the Reserve Bank of Australia’s statistics (see graph), owner-occupiers with a new variable home loan were paying around 48 bps less than those with outstanding loans in August — with Lendi data showing it could be up to 91-bp difference.

Many players in the industry have been working to address this issue — particularly as it affects a growing pool of borrowers. 

Repricing and refinancing tools like Sherlok have been making headway in harnessing AI to help brokers seek better deals for their clients, while neo-lenders such as ubank (which subsumed 86 400), OneTwo Home Loans and Athena Home Loans (now partnering with the broker channel via FAST and under a Mortgage Choice white label partnership) offer borrowers variable rate reductions as their LVR reduces as they pay down their debt.

But while the industry can take things so far, the government could also be doing more. Of the many low-hanging fruit options that are available, an easy one would be to enact, finally, the recommendations from Australian Competition and Consumer Commission (ACCC) Home Loan Price Inquiry.

The report, which was handed to former treasurer Josh Frydenberg in November 2020 and released in December 2020, put forward several solutions to making mortgages more transparent and reducing barriers to switching.

The recommendations included:

• Having lenders prompt borrowers with variable rate loans originated more than three years ago to contact their broker or lender to review their rate
• Creating a standardised discharge authority form 
• Limiting discharges to 10 business days

The ACCC chair Rod Sims said at the time: “There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers, switching will be worth the effort…

“Existing lenders want to keep their borrowers, so have no incentive to make the discharge process quick or straightforward.

“We want it to be as easy as possible for borrowers to switch lenders, as it should be in all markets. Our recommendations are designed to make this process faster, less confusing and less frustrating.”

But since the report was handed down, there’s been radio silence from the government.

For example, Mr Frydenberg said in December 2020 that the government would “consider the report and respond in due course” — but no such response ever came. 

In September 2021, Mortgage Business chased Mr Frydenberg’s office for details of when it would respond, but received no response. 

With a new Treasurer in office (Jim Chalmers MP), the Albanese government is not technically beholden to respond to the previous administration’s reports and inquiries — but consideration and action on these points would still be welcome.

Signs are there that the new government may wish to put mortgages in the spotlight.

For example, Mr Chalmers recently flagged the “pain” that many mortgagors are feeling — and noted the importance of mortgage affordability. Housing has also been on his radar, with the MP flagging the necessity of making housing more affordable and focusing his first investor roundtable on the issue. Prime Minister Anthony Albanese has also committed more money towards social housing — a key pillar of his election campaign.

With the budget coming up next week (25 October), and more calls to help support borrowers to navigate the changing economic environment, here’s hoping that action will finally come and that real change will come.

Borrowers don’t have the luxury of waiting another two years for anything to be done.

[Related: ACCC report: 4 ways to improve mortgages]