The Finance Brokers Association of Australia (FBAA) has called on the Australian Prudential Regulation Authority (APRA) to reassess its decision to continue with a 3 per cent loan serviceability buffer for mortgages, as interest rates rise.

The association said the announcement by APRA that the current serviceability buffer would be maintained, makes it even harder for mortgage holders to refinance and negotiate a better rate.

FBAA managing director Peter White AM said the buffer – which is added to a lender’s interest rate for loan assessment purposes – means that many borrowers who can afford the interest rate of the day or even a little higher, are being unfairly prevented from refinancing.

“More borrowers are becoming ‘mortgage prisoners’, locked into a situation where they can’t access a better deal because they don’t meet the inflated assessment rate,“ he said.

“Others may be forced into selling their homes because the excessive buffer rate holds them prisoner to their current lender as rates rise. 

“A 3 per cent buffer was appropriate in the past because interest rates were at an all-time low and were always going to rise significantly, and this protected both the banks and the borrowers, but we can’t live in the past and a buffer of 1.5 to 2 per cent is far more appropriate today and in the near future.”

The FBAA questioned whether APRA is potentially “signalling to the market that there is another 3 per cent rise to come, because there is no other reason to keep borrowers captive.”

Mr White said it wasn’t the fault of Australian consumers that interest rates have jumped so quickly, but they are the ones being penalised.

“It’s time borrowers stopped paying the price for the rapid rise of rates.

“The FBAA was predicting the rise well before the RBA acted but at the time many didn’t believe us. Rates should have been managed better and raised in smaller increments over a longer time period.”

He called on APRA to reassess the buffer rate on a regular basis, “but not less than every two years to ensure they are fit for purpose in the market they are representing now and in the near future.”