How investors end up in ‘mortgage prison’

By Juliet Helmke 12 November 2021 | 1 minute read

APRA’s recent increases to banks’ loan serviceability expectations are intended to cool rapidly rising prices, but industry experts warn that there could be unintended consequences, including hindering investors’ ability to refinance at a lower rate.

Peter White

Speaking on a recent episode of The Smart Property Investment Show, Peter White AM, the managing director of Finance Brokers Association of Australia (FBAA), shared some insight into how the industry expects APRA’s mortgage crackdown to play out in Australia’s housing market, warning, “there is going to be a collateral impact somewhere”.

For his part, Mr White said that he hopes the 50 point raise on the floor rate is enough to have an effect on rapidly rising prices, and APRA will not feel there’s a need for further intervention. 

In his estimation, it will likely take six to 12 months of feedback from property prices before the regulator indicates if further regulatory levers are likely to be pulled.

But he voiced his concern that even the current changes could have some negative flow-on effects for owners and investors across the country.

“The thing we’ve got to watch with APRA is that this is a broad-brush approach to servicing a loan,” Mr White said. “There are impacts, and they will affect investors who are doing developments more so, which could be small development projects for the first home buyer market, who all of a sudden may not meet the new serviceability regime,” he said by way of example.

Purchasers who have set their sights on buying into these new buildings could also get stung.

“People buying off the plan, when the reassessment’s done prior to settlement, all of a sudden may not be able to afford [the home],” he explained.

Mr White is urging politicians and regulators to keep a close eye on how the changes, which came into effect this month, are playing out in real-life situations.

“We understand and don’t necessarily disagree with a part of this move,” Mr White said, but added that in this instance, history holds an important lesson. “We don’t want to see what happened when APRA moved floor rates back in the day, which had quite a disastrous effect.” 

One of those effects, he said, amounted to borrowers essentially becoming “mortgage prisoners” in their home loans. 

This occurs when rates move around, and property owners seek to refinance in order to get a better deal, only to discover, “you can’t move your loan because you don’t meet the new servicing floor rates,” Mr White explained. “And financially, you’re probably paying more than what you were before.” 

It’s a catch-22 that leaves people paying more for a financial product than they might need to, but with no exit.

“We’ve got to watch this mortgage prisoner game. We’ve got to watch what happens with the first home buyer market and also the refinance market,” Mr White said, urging industry leaders and regulators alike to monitor the situation closely.

“It’s one of those things that it’s a delicate step, and one that can have unintended consequences and landmines pop up that wasn’t the intent of what was trying to be done.”

Listen to the full conversation with Peter White here




Mortgages are loans that are used to buy homes and other real estate where the property itself serves as collateral for the loan.


Mortgages are loans that are used to buy homes and other real estates where the property itself serves as collateral for the loan.


Mortgages are loans that are used to buy homes and other real estates where the property itself serves as collateral for the loan.


Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.

About the author

Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York... Read more

How investors end up in ‘mortgage prison’
Peter White
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