Lender switching fell 8.8% in September, according to the figures brokers are pointing to. That is a small number with a large idea behind it: the people most likely to want a better deal are increasingly the people who cannot get one.
The cause is serviceability, the test a lender runs to check whether you could still afford the loan if rates rose. It was designed to stop borrowers over-reaching at the point of purchase. Applied again at the point of refinancing, it has a side effect nobody sold us on.
Why refinance serviceability bites hardest on the people who need it
When you apply with a new lender, that lender assesses you from scratch. Your existing lender never has to. It already holds the loan and has no obligation to re-test your capacity every time it adjusts your rate.
That asymmetry is the whole story. A borrower who took a loan when rates were lower, and whose repayments have since climbed, may now fail the test at a competing lender, even though they have been meeting their repayments every month. Paying on time is not the same as passing a fresh buffer assessment.
The borrowers caught are often the ones under the most pressure. Brokers describe clients hit by redundancies, or holding properties that now value lower than expected, which squeezes the loan-to-value ratio at the same time as income gets less certain. Two tests fail together.
Key numbers
- Lender switching: down 8.8% in September
- Buffer being discussed by brokers as a workaround: 1%
- Common pressure points: income disruption and softer valuations
The quiet cost to competition
Here is the trade-off. A serviceability buffer is a prudential tool. It lowers the odds of a borrower defaulting in a downturn, and regulators have good reasons to want that.
But refinancing is also how the market polices lenders. When customers can walk, banks have a reason to keep rates sharp for existing borrowers. When customers are stuck, that discipline weakens. The borrower who most needs a cheaper rate is the least able to demand one.
This is the second-order effect that rarely makes it into the policy debate. Protection at the front door can become a lock on the back door. Nobody intended it, and it is hard to measure, but it is real.
What brokers are doing instead
The workarounds are telling. Brokers report turning to lenders that apply a 1% buffer rather than the higher standard, and to non-bank lenders whose credit rules differ from the major banks.
That can work, but it is a trade-off, not a free option. Non-bank loans can carry different pricing and different features. A lender with a lighter buffer is accepting more risk, and borrowers should ask why they are being offered terms their current bank would not give.
Meanwhile, retention teams at existing lenders are stepping up. A borrower who signals intent to leave often finds a better rate appears. That is useful, but it also confirms the point: the rate was available all along for those willing to ask.
Is this a policy flaw or the system working?
It is worth giving the other side. If a borrower cannot pass a modest buffer test, one reasonable reading is that the loan is already stretched, and a new lender declining it is the system doing its job. Refinancing into a bigger problem is not a rescue.
Both readings have merit. The real question is whether there is a middle path, such as a more lenient test for borrowers with a clean repayment history who are not borrowing any more than they already owe. That would separate a stretched borrower from a good one who is simply unlucky on timing.
The broader borrowing context matters here too. Our home loans, lenders and refinancing guide covers how lenders assess applications, and the trans-Tasman stress test analysis shows how non-bank lending gaps can open up when banks tighten.
Scenarios from here
- Base case: switching stays subdued while rates stay elevated, and retention discounts do much of the work lenders would otherwise lose to competition.
- Upside: easing rates lift incomes relative to repayments, and more borrowers pass the test without any rule change.
- Downside: job losses and falling valuations rise together, leaving more households stuck on a rate they cannot escape and cannot easily afford.
What to do if you are stuck
- Ask your current lender for a rate review, and be specific about the rate you have seen elsewhere.
- Check your loan-to-value ratio with a current valuation before you apply anywhere.
- Talk to a broker about lenders with different buffers, and ask what you give up in features or pricing.
- If you are struggling with repayments, speak to your lender early about hardship options rather than waiting.
The most useful next step is the simplest: call your existing lender and ask for a better rate. Then compare it honestly against what a switch would actually cost you. For more weekly analysis like this, subscribe to the newsletter.
General info, not financial advice.
