Amid rising interest rates, anyone currently making repayments on their mortgage is starting to feel the pressure. The major bank lenders are passing on RBA’s rate hikes to existing customers, but offering better deals to new clients. 

With the official cash rate rising – and expected to rise 0.5 per cent more by the end of the year – paying a loyalty tax on a home loan is taking thousands of dollars out of each individual’s bank account. 

New research by AMP Bank shows that 64 per cent of Australians are worried about meeting mortgage repayments. Are you at risk of becoming a mortgage prisoner? And can you escape the mortgage loyalty tax? 

Are you a mortgage prisoner?

Softening property prices are putting borrowers at risk of being trapped in a mortgage prison. 

Reduced home equity and interest rate rises could affect a property owner’s capacity to refinance to a lower mortgage rate due to higher loan-to-value ratios (LVRs) and reduced borrowing capacity. 

People that bought property before the price increases in 2021, should have plenty of equity accumulated to be able to meet the serviceability test when refinancing. But those that have bought specifically in the second half of last year or this year could find their equity dropping below the required 20%. Valuations organised by banks will also tend to be more conservative on a refinance.

The impact will most acutely be felt by young borrowers who bought in the past 12 months and variable rate mortgage holders that missed out on the low fixed rates during Covid – those that can least afford it. 

It is estimated that 10-15 per cent of recent borrowers may not be able to afford new serviceability rates and face difficulty refinancing their loans.

What is a home loan loyalty tax?

A bank loyalty tax or loyalty gap is the extra money existing home loan customers pay on their loan repayments as opposed to a new customer that is lured in by the banks with a better deal. The result is that long-term, loyal customers end up paying more as their bank tries to attract new customers with discounts.

And according to data from RBA, this gap has widened to a record high of 0.48 per cent as of July. Plus, rising rates are stopping homeowners from looking for better deals. 

But in the current situation, home loan refinancing could not be an option for everyone. 

Are you able to refinance? Get in touch

Do you know if you can refinance? If you have a loan and haven’t considered it, we urge you to do so as you can save thousands, even with property prices falling. Do a quick check and use our refinancing calculator to calculate your refinance savings.

If you’re worried about your mortgage, or worried about meeting your repayments, feel free to give us a call today. We’re an experienced mortgage broker team, and have a lot of knowledge that can help you find out the best course of action to take. 


Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Emmanuel Guignard (MBA)
Director & Principal Mortgage Broker
With over 15 years’ experience in the finance industry and a recently completed MBA in Financial Planning, Emmanuel leads the broking team at Loanscope. His experience includes working with a wide range of property investors, from first time buyers to investors with large property portfolios. This includes handling complex applications involving trusts, company structures and self-managed super funds. He also operates as a qualified mentor to other mortgage brokers via the FBBA mentor program.
Emmanuel Guignard