Why Australian fixed rate borrowers in 2023 will find it hard to switch to a ... trends now

Australians facing a 65 per cent surge in mortgage repayments in coming months could have a hard time moving to a cheaper home loan rate because of strict bank lending rules - as one financial expert urges borrowers to push for pay rises now.

The Reserve Bank estimates 800,000 ultra-low fixed rate home loans are due to expire in 2023. 

This means those who fixed their mortgage rate at less than 2 per cent in 2021 face moving on to a 'revert' variable rate of more than 7 per cent this year - which would see monthly repayments abruptly surge by 65 per cent.

To avoid this, borrowers can switch to another bank in the hope of reducing that increase to a tough but more manageable 50 per cent.

But Australian Prudential Regulation Authority rules require a bank to assess a borrower's ability to cope with a three percentage point increase in variable mortgage rates.

Since May, the RBA has raised rates nine times, adding up to 3.25 percentage points, as the cash rate soared from a record-low of 0.1 per cent to a new 10-year high of 3.35 per cent this month.

This means stretched borrowers coming off low fixed rates, looking to switch banks to avoid a high 'revert' variable rate, face strict hurdles that could stop them from switching banks.

The rules would also be unlikely to change for at least several months, making life harder for these borrowers. 

Aussie Home Loans founder John Symond said APRA, the banking regulator, could this year reverse its November, 2021 decision to raise the stress test threshold to 3 percentage points, up from 2.5 percentage points.

'Certainly, in the next three months, if there is starting to be a fallout of borrowers, they might do something,' he told Daily Mail Australia.

'I think they'll wait for a few months to see what fallout there is.'

RateCity research director Sally Tindall said existing strict banking lending rules could make it harder for struggling borrowers coming off a very low fixed rate to negotiate a lower variable rate.

'It can make it difficult for people to refinance, full stop,' she told Daily Mail Australia.

Ms Tindall said the rules would have to be reviewed once the RBA stopped raising rates in 2023.

'APRA may need to relook at this buffer in the months ahead so see if it's still suitable, not just for new borrowers coming through the pipeline but also the people who are refinancing in a much higher rate environment,' she said.

'I can only imagine that APRA though is not going to want to tweak it every few months - they are likely to want to get a clearer picture of where the cash rate will land before they make a decision.  

'The rate environment is completely different now.' 

APRA's new chairman John Lonsdale indicated he was open minded about revising the bank lending rules in an interview with The Australian Financial Review in November last year.

'As I sit here before you now, we think the macroprudential settings – including the serviceability buffer, which is just one of them – are appropriate,' he said.

'But if the facts change, our views might change too.'

The Big Four banks in May, 2021 were offering average, two-year fixed rate

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