The Great Refinancing Squeeze: Why Some Aussie Borrowers Are Getting Knocked Back — and What to Do If You’re Stuck
- Written by David Warburton
Rates are easing, yet many homeowners are still paying well above six per cent because their lender won’t let them out and a new lender won’t let them in. I see it every week: solid borrowers with stable incomes walk away from a refinancing meeting shocked to learn they suddenly don’t qualify. Here’s why it happens—and how you can tilt the odds back in your favour.
Why perfectly good borrowers hit a brick wall
The serviceability buffer now hurts more than the rate itself.
Every lender stress-tests new and refinanced loans at roughly three percentage points above the contract rate. If you’re chasing a 5.6 per cent variable loan, you must still prove you can afford about 8.6 per cent. Add higher living-expense benchmarks, a couple of unused credit-card limits and perhaps a modest Buy-Now-Pay-Later balance, and the surplus evaporates.
Equity gets eaten away—sometimes only on paper.
Property values in parts of Sydney, Melbourne and many regional pockets have see-sawed for two years. If a bank valuer decides your place is worth less than you expected, the loan-to-value ratio can creep above 80 per cent. That triggers fresh mortgage-insurance premiums or, worse, leaves you with negative equity. Either outcome can sink an application before it starts.
Fixed-rate break costs are still lurking.
Plenty of borrowers have locked in fixed loans that still have time left to run. Breaking early can attract a fee running to several thousand dollars. When that fee gets rolled into the new loan, the LVR jumps and the deal can fail the lender’s risk grid.
Loyalty tax hides weak credit files.
Clients who have sat on the same mortgage for years often pick up extra credit cards, a car lease or a personal loan along the way. Because their existing bank keeps debiting the mortgage each month, nobody questions the extra liabilities—until a new lender scores the file and knocks it back.
Gig-economy income doesn’t always count.
Side-hustle earnings have exploded since 2023, but most policies still average ABN or casual income over two years. Recent gains may be ignored entirely, leaving you looking poorer on paper than you feel in real life.
How to fight back when a refinance stalls
Audit your spending profile before the lender does.
Download three months of bank statements and highlight recurring transfers, dormant card limits and small direct-debits you’d forgotten about. Cutting a twenty-grand credit-card limit to five can raise borrowing power by several thousand dollars. Close unused Buy-Now-Pay-Later accounts and cancel subscription services you barely touch.
Tidy the liability side.
Small personal loans at double-digit rates sabotage Home loan refinances all the time. If you can clear them quickly, do it. Consolidating into the mortgage can help, but only if you keep the home-loan term unchanged; otherwise that Bali holiday ends up costing you interest for thirty years.
Lift your valuation the quick-and-clean way.
Fresh paint, upgraded lighting and a weekend of landscaping often tip a valuer’s figure just enough to bring the LVR under 80 per cent. I’ve seen five thousand dollars in cosmetic work translate into a paper gain of ten—exactly the difference between approval and decline.
Look beyond mainstream lenders.
Brokers now place almost three-quarters of new loans because specialist lenders cater to niches the bigger institutions avoid—higher-LVR Home loan refinances, alternative income verification, family-guarantor structures. The rate might land twenty or thirty basis points above headline specials, but if it clears the buffer and slashes your actual repayment today, it’s worth considering.
Leverage the client-retention team while you regroup.
If a full refinance stalls, call your current lender’s retention line with hard evidence of a cheaper offer. In many cases they’ll match or at least narrow the gap within a day. You pocket the savings immediately and buy time to rebuild your serviceability profile for a cleaner switch down the track.
Time your second attempt with the rate cycle.
Each Reserve Bank cut automatically eases the stress-test trigger. A quarter-point reduction drops the assessed rate by the same amount, nudging borderline files over the line. If policy-makers deliver rate cuts, revisit a declined application almost straight away. Another trim is tipped before Christmas, so set a calendar reminder to refresh your numbers then.
A reality check—and a roadmap
Refinancing isn’t magic. You still need equity, provable income and clean credit. But many who fail the first time do so for fixable reasons: high unused card limits, outdated valuations, an unreviewed loyalty tax. Get proactive with your own file, trim liabilities, spruce up the property where it counts and widen your lender search. With a little groundwork you can turn a computer-says-no into a formal approval—and let the next rate-cut cycle work for your budget instead of your bank’s bottom line.
Bio: David Warburton is a Bacchus Marsh finance broker and small‑business owner. Ratechallenge.com.au
