The gap between what borrowers are paying and what they can access has widened sharply. Fresh broker survey data shows 49% of practitioners now have clients who cannot switch lenders, up from 25% six months earlier. That doubling occurred even as the actual interest rates borrowers face stayed roughly flat.
The disconnect sits with how lenders test affordability, not where rates landed. Australia’s serviceability assessment adds three percentage points to the rate a borrower will actually pay, then asks: can they service the loan at that higher figure? When the buffer sits on top of a rate that is already elevated, the maths starts rejecting people whose repayments are current.
The assessment arithmetic
Someone borrowing at 6.5% gets tested at 9.5%. That hypothetical rate has not existed in this cycle, but the test assumes it might. The prudential regulator mandates the buffer to protect against future shocks.
The problem emerges when a borrower with a clean record tries to move from 7% to 6.3%. The new lender tests them at 9.3%, which may clear. But if debt has grown slightly, expenses have crept up, or income flatlined, the reassessment can fail even though the actual repayment would drop. The system designed to prevent stress can lock people into higher costs.
Industry data covering 588 brokers, released in late August, captures the sharpest single-period deterioration on record. Two years ago, 83% of brokers flagged rising refinancing difficulty. That figure fell steadily through early 2025, bottoming near 42%. The latest read reverses all of that improvement in one move.
Broker workarounds when the switch is blocked
When refinancing is off the table, brokers are pivoting to three fallback strategies. Negotiating a retention discount with the existing lender worked for 96% of brokers in the past six months. Loan restructuring, splitting the debt, extending terms, or switching part to interest-only, was deployed by 91%. First-time broker clients seeking a refinance got help from 89%.
Those figures describe activity, not success rates. A discount might shave 20 basis points; restructuring might ease cashflow but extend total interest paid. Neither substitutes for a genuine 70-basis-point rate cut via a switch, but both beat inaction when the better loan is out of reach.
The catch
Retention offers typically sit above the sharpest market rates. Lenders price the discount assuming the borrower has no exit. A 6.8% hold-rate discounted to 6.6% still leaves the customer paying more than a 6.1% refinance would have delivered, but 6.1% is irrelevant if the application gets declined.
The pressure underneath
Borrower confidence has tracked the rejection rate. Over half of brokers, 55%, now report clients feeling negative about their financial outlook, more than double the prior survey’s result. Cost-of-living pressure leads that sentiment shift, and 40% of brokers expect repayment stress to worsen over the next six months.
That expectation matters because it influences how lenders price risk and how strictly they apply policy. If arrears tick up, credit committees tighten exceptions processes. The serviceability buffer itself is fixed by regulation, but how much flexibility lenders allow around it is not.
The industry body representing brokers has called for greater scope to treat demonstrated repayment history as a countervailing factor when applying the buffer. The argument: someone who has paid on time through 400 basis points of rate rises has already stress-tested themselves in reality, so why block them from accessing a cheaper loan on a hypothetical test?
Regulators have not moved on that position. The buffer remains uniform.
Who this hits hardest
Borrowers with variable-rate loans at their original lender, modest equity, and household expenses that have grown faster than income. That group skews toward outer suburbs, dual-income households where one income dropped or stalled, and anyone who bought in late 2021 or 2022 near the peak with a sub-20% deposit.
Equity helps. Borrowers who have paid down 30% or more can sometimes offset weaker income ratios. Single-income households with stable high earnings clear the buffer more easily than dual-income households where one wage is casual or contract.
What’s open when refinancing is closed
Start with the existing lender. Retention teams have more room to move than new-customer pricing suggests, particularly if the borrower signals they have been declined elsewhere. That removes the lender’s risk of losing the customer, but it also removes the customer’s leverage, the outcome is a negotiated discount, not a market-rate switch.
Restructuring changes the loan shape without changing the lender. Common moves: extend the term to lower the monthly test, switch part of the debt to interest-only to improve short-term serviceability ratios, or consolidate other debts into the mortgage if that clears non-mortgage commitments from the serviceability calculation. Each carries trade-offs, longer terms mean more total interest, interest-only delays principal paydown, consolidation turns unsecured debt into secured debt against the home.
The third option is wait. If income rises, expenses fall, or rates drop enough that the buffer test clears, refinancing reopens. That timeline is unpredictable.
Scenarios over the next twelve months
Base case: rejection rate holds near 50% while the Reserve Bank keeps rates flat. Lenders maintain current serviceability settings, retention discounts remain the primary relief valve, and refinancing volumes stay suppressed. Borrowers with strong equity or income growth are the minority who can still switch.
Upside: the central bank cuts 50 basis points by mid-2027, lowering the buffer test enough to reopen refinancing for marginal cases. Lenders ease exceptions policies slightly, and rejection rates drift back toward 35%. Retention offers shrink as competitive pressure returns.
Downside: cost-of-living pressure lifts arrears, lenders tighten credit further, and rejection rates push past 60%. Retention discounts get smaller as lenders face less competitive threat. More borrowers end up in hardship variations or forced sales.
The base case sits closest to current settings and regulatory posture.
Next step
If you have been holding off asking your lender for a better rate because you assumed refinancing was the only real option, test the retention path first. The starting point is a written request citing your repayment history and current market rates 60 to 80 basis points below what you are paying. If that fails or delivers a token cut, a broker conversation costs nothing and may surface a restructure or lender exception you were not aware existed.
Second-best beats locked-in when the gap is 50 basis points or more. The non-bank lender funding market continues to grow, and some non-bank lenders assess serviceability differently than the major banks, though not all, and the buffer itself still applies.
Subscribe to the weekly signal for updates when refinancing conditions shift.
General info, not financial advice.
