The banking regulator is alert to mortgage stress as interest rates rise and borrowers face a looming deadline on cheap fixed-rate home loans, but won’t ease the rules.

Refinancing a mortgage has hit the highest level in 20 years, Australian Prudential Regulation Authority (APRA) chair John Lonsdale said on Wednesday.

There was plenty of competition and no regulatory impediment to borrowing, he told a senate estimates committee.

But Lendi Group says a significant number of first-home buyers are in “mortgage prison”, with one in 10 owning less than 10 per cent of their home, which limits their ability to refinance.

Many first-home buyers will roll off their ultra-low fixed rate mortgage and onto a rate that carries the full weight of Reserve Bank interest rate rises.

Mr Lonsdale acknowledged some borrowers may have fewer options for refinancing their existing loan but he said the buffer required for qualifying for a mortgage would remain in place.

Currently, home buyers taking out a loan must be rated as able to meet repayments if interest rates were to rise by three per cent.

“For some, the impact of rising interest rates may have resulted in less favourable serviceability results, others might be impacted by declining housing prices or changed personal finances,” he said.

Where a bank could identify the person as a “good borrower” they should still lend, he said.

Supported by strong risk-weighting for mortgages, APRA expects Australia to remain free of contagion from banking collapses elsewhere.

“The Australian financial system remains very strong, very stable, very resilient,” Mr Lonsdale said.

Recent stresses for European and United States banks have highlighted “new complexities and challenges”, he said.

“There are “linkages and there are lessons … we are in the risk business.”

Globally, regulators are also watching the speed at which savings can exit a failing bank – in March it was within hours.

The stability and viability comes down to the people running these banks, the regulator said.

Mr Lonsdale said he had met with the boards of three major Australian banks in recent weeks and reminded them of how events unfolded in March when several US banks failed.

“I can tell you all of them are very alive to that,” he said.

Australian banks are linked to international markets and pay close attention to fragility elsewhere, as does APRA, he said.

But all Australian banks are in front of their funding requirements, he added.

Marion Rae
(Australian Associated Press)