When a Good Repayment History Isn't Enough to Refinance

Picture someone who bought their first home in 2024, has never missed a repayment, and would love to switch to a cheaper loan now that rates have moved around. The problem is that the bank doing the assessing does not just look at whether you can afford your current repayments. It has to test whether you could still afford the new loan if interest rates climbed further from here. For a growing number of Australian borrowers, that test is the thing standing between them and real savings.

What the numbers show

According to analysis from Aussie Home Loans reported by The Adviser on 1 October, a little over one in five people (20.7 percent) who bought a home between July 2023 and August 2025 now hold less than 20 percent equity in their property. In Victoria that figure is far higher, with 51.6 percent of recent buyers sitting above an 80 percent loan to value ratio. Nationally, Victoria accounts for close to 40 percent of these borrowers, with New South Wales and Tasmania also carrying a larger than average share. These borrowers, often described in the industry as mortgage prisoners, tend to hold bigger loans too, with an average balance of about $646,000 compared with $536,000 for recent buyers who have built up more equity.

Equity is only part of the story. Serviceability, meaning a lender's assessment of whether you can comfortably afford the repayments, is increasingly the bigger obstacle. The Mortgage and Finance Association of Australia's broker sentiment survey, run in August 2026 among 588 brokers, found 49.2 percent had seen more clients unable to refinance due to serviceability constraints. That is more than double the 24.4 percent reported just six months earlier.

Why the test has gotten harder

Every lender in Australia has to apply a buffer set by the banking regulator APRA when assessing a new loan or a refinance. Right now that buffer sits at 3 percentage points, meaning a lender must check you could still meet your repayments if your interest rate were 3 points higher than the rate you are actually applying for. That buffer has not changed through 2026, but what has changed is the rate it gets added to. The Reserve Bank lifted the cash rate four times this year, taking it to 4.60 percent, the highest level since late 2011. Each of those rises pushed up the rate lenders use as their starting point, which means the bar you need to clear to pass serviceability keeps rising too, even if your own income and expenses have not changed at all.

The practical effect is that someone who comfortably serviced their loan in 2023 might fail the test for an identical loan amount today, simply because the assumed buffer rate is now higher. It is a strange position to be in. You are a reliable borrower with a track record to prove it, and you still cannot move.

What you can actually do about it

Being stuck with one lender does not mean you are stuck with no options. Many lenders will negotiate on rate with existing customers through a retention team, and because you are not technically applying for a brand new loan, the full serviceability test does not always apply in the same way. Reducing or closing unused credit card limits, paying down other debts, and tightening up discretionary spending can also improve how a lender views your application, since all of these count against you in a serviceability assessment even if you never use them. For some borrowers, waiting for a bit more equity to build, either through repayments or a recovery in property values, is the more realistic path. For others, a lender with a different risk appetite or a specialist loan product might be the answer, which is exactly the kind of option a broker spends their day comparing.

None of this is a guarantee that refinancing will be straightforward while rates sit where they are. But understanding why the door feels harder to open, and knowing which levers are actually yours to pull, puts you in a much stronger position than assuming nothing can be done. If you think you might be in this position, or you are simply not sure where your numbers sit against today's serviceability settings, it is worth having that conversation before you rule anything out.

Figures in this article are drawn from Aussie Home Loans analysis reported by The Adviser (1 October 2026), the Mortgage and Finance Association of Australia's August 2026 Market Sentiment Survey, and APRA's confirmed 3 percentage point serviceability buffer.

This article is general information only and does not take into account your personal objectives, financial situation or needs. Please speak with a Claremont Financial broker before making any borrowing decision.