Context: From fixed‑rate cliff to a refinancing reset

Australia’s mortgage market has been reshaped by a rapid rate cycle and a fixed‑rate rollover that forced borrowers from circa 2% pandemic-era rates onto variable loans often double that. The Australian Prudential Regulation Authority (APRA) has maintained a 3 percentage point serviceability buffer for new and refinanced credit, a prudent guardrail that also left many otherwise reliable payers classified as ‘mortgage prisoners’—able to meet current repayments but failing affordability assessments for a switch. Yet refinancing volumes have stayed near record levels since mid‑2023 (ABS Lending Indicators), as borrowers pursue sharper pricing and as lenders deploy more targeted underwriting.

Brokers sit at the centre of this shift. Industry data shows broker share of new residential lending consistently above 70% through 2023–24 (MFAA), reflecting borrower demand for navigation through complex pricing, cashbacks, and policy exceptions. Crucially, lenders have pivoted from broad-brush acquisition tactics (cashbacks) to more surgical repricing and risk-based offers, intensifying competition for refinancers with strong equity and clean conduct.

Decision: A lender–broker consortium targets ‘like‑for‑like’ refinances

In 2024, a consortium of mid‑tier lenders and a national aggregator (composite case based on industry practice) set a goal: responsibly unlock refinancing for trapped borrowers without diluting credit standards. The strategic bet rested on three pillars:

• Policy clarity: Emphasise ‘like‑for‑like’ refinances—same or lower loan amount—supported by robust exceptions policies consistent with APRA’s guidance that exceptions can be used sparingly under strong risk controls.
• Data-driven triage: Prioritise customers with loan-to-value ratios (LVRs) below 80%, steady income, and zero arrears; de-emphasise high debt-to-income (DTI) and marginal buffers.
• Retention parity: Build internal repricing engines that can match external offers within hours, not weeks, to prevent unnecessary churn.

Implementation: The operating model that actually moved the dial

The consortium deployed an execution stack designed to balance risk, speed, and customer outcome:

• Affordability engine: A rules-based tool calculates repayment capacity at the lender’s assessment rate (actual rate + 3% buffer), flags exception candidates (e.g., stable conduct, lower balance, lower rate), and routes them to a credit specialist for manual review.
• File-light processes: Open banking and payroll verification reduced document friction and cycle time. For low-risk profiles, lenders moved to 48–72 hour decisions to compete with major banks’ turnaround claims.
• Rate personalisation: Pricing tables reflected granular risk tiers—LVR bands, DTI thresholds, income stability, and property type—delivering 20–60 bps sharper rates for prime refinancers versus carded rates.
• Broker toolkits: The aggregator rolled out servicing calculators aligned to each lender’s policy, scenario desks for ‘mortgage prison’ cases, and pre‑screen templates to cut dead files.
• Retention squads: Lenders created dedicated ‘save desks’ with authority to reprice within pre-set margins; CRM triggers alerted teams when broker discharge forms were requested.

Results: Material easing for borrowers, disciplined risk for lenders

Composite outcomes reported across participating lenders and the aggregator (2023–24):

• Access: Approval rates for like‑for‑like refinances rose by 10–15 percentage points for target segments (LVR ≤80%, clean conduct), despite unchanged formal buffers.
• Pricing: Average successful refinances achieved rate reductions of 30–70 bps versus incumbent pricing through external switches or internal repricing.
• Speed: Median time-to-yes dropped from 10–12 business days to 4–6 with open-banking enabled verification.
• Arrears stability: Early‑stage arrears ticked up in 2024 but remained low by historical standards (industry data shows 30–89 day arrears in the ~1.5–2% range), suggesting targeted refinancing did not materially erode credit quality.
• Economics: For lenders, acquisition cost per settled refinance fell 15–25% as cashbacks were withdrawn and digital verification cut processing costs. For borrowers, switching or repricing often saved A$1,200–A$3,000 per year on typical loan sizes, even at higher headline rates.

Technical deep dive: What ‘mortgage prison’ really means in underwriting

The affordability bind stems from arithmetic, not reluctance. At a variable rate of, say, 6.5%, lenders test affordability at roughly 9.5% including the 3% buffer. Many households servicing current loans pass on cashflow but fail the model, especially where DTIs exceed 6 or where expenses leave thin surplus. Lenders have responded with controlled exception pathways for like‑for‑like cases: same or smaller balance, lower rate, no adverse credit, and LVR typically under 80% to avoid lenders mortgage insurance. The trend away from cashbacks towards sharper ongoing rates and faster decisions reflects a rationalisation: compete on risk‑appropriate pricing and service, not one‑off incentives.

Market dynamics: Competition, regulation and broker advantage

Three market forces are now in play:

• Competition cycle: With refinancing near historical highs, lenders are in a pricing war for high‑quality refinancers. Repricing engines keep incumbents in the fight; challengers rely on speed and service‑level certainty.
• Regulatory posture: APRA’s buffer stays at 3%, but lenders are using well-governed exceptions for like‑for‑like switching. This preserves systemic prudence while enabling practical relief for strong performers.
• Broker leverage: With more than 70% of new flows mediated by brokers, lenders are tailoring policy, SLAs, and pricing to aggregator funnels. Scenario desks and upfront credit policy transparency are becoming table stakes.

Case example (composite): A three‑step escape for a trapped borrower

An owner‑occupier with a 78% LVR and clean payment history failed a refinance at a major due to buffer arithmetic but qualified under a mid‑tier lender’s like‑for‑like exception. A broker used open banking to validate income stability and optimised expenses, the lender approved within five days, and the borrower cut their rate by 55 bps. In parallel, the incumbent offered a 45 bps internal reprice once a discharge was requested—illustrating how broker‑led competition creates consumer surplus even when the customer ultimately stays.

Lessons: What executives should do now

• Build an exceptions framework you can defend: Define like‑for‑like criteria, escalation limits, and audit trails. Use it to free creditworthy borrowers without undermining the buffer.
• Industrialise verification: Open banking and payroll APIs that cut days from decisioning generate immediate ROI in refinance contests.
• Price with precision, not promotion: Retire blunt cashbacks; invest in dynamic pricing tied to LVR, DTI, and conduct data. Measure lifetime value, not headline growth.
• Harness broker distribution: Align calculators, policy notes, and SLAs with top aggregators. Treat broker scenario desks as your pre‑underwriting engine.
• Strengthen hardship pathways: For borrowers who can’t pass even like‑for‑like tests, proactive hardship and product-switch options reduce arrears risk and regulatory heat.

Outlook: The next 12–18 months

Even if the RBA cash rate eases from its 4.35% peak in late 2025, buffers and living‑cost assessments will keep affordability tight. Expect more targeted easing for switching (within existing balances) through exceptions rather than formal buffer cuts. Broker influence will persist at 70%+ share, and lenders able to combine fast verification, exception discipline, and risk‑tiered pricing will win prime refinancers at sustainable economics. For boards, the strategic question has shifted from “Should we compete in refinancing?” to “Can we build the data, policy and operating cadence to win it safely?” In this market, speed and precision are the real escape keys.