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Mortgage prisoner trap hinders refinance goals

While a majority of mortgage-holders would like to switch lenders, many have become “mortgage prisoners” as a result of COVID-19, according to research.

According to a recent survey conducted by Mozo, 83 per cent of mortgage-holders would like to change lenders, but 45 per cent of respondents in this group are unable to due to limited earnings, while 38 per cent intend to make the switch.

The Mozo report described these home owners as “mortgage prisoners”, as they are confined to their current home loan and unable to refinance to a lower rate.

The survey found that out of the 45 per cent of respondents who are unable to switch lenders, 29 per cent reported having recently lost a job while 16 per cent said they had experienced a pay cut during the coronavirus pandemic.

Other respondents said they fear a fall in property values as a result of the COVID-19 crisis, with 66 per cent of mortgage holders admitting that they are worried about a housing equity plummet in the next year.


Around two-thirds of mortgage-holders in most states reported being concerned about possible property prices drops and the flow-on effects on their home equity, rising to 71 per cent in NSW and 70 per cent in South Australia, but less so for Western Australian mortgage-holders (54 per cent).

Almost three-quarters of all respondents (73 per cent) believe property prices would plummet, although 39 per cent of this group anticipate a recovery in prices. On the other hand, 21 per cent feel that housing prices would remain stable, while only 5 per cent predict a property price upswing.

Mozo director Kirsty Lamont said a drop in property prices could send some property owners into mortgage prisoner territory, or make it more difficult for them to switch.

“For mortgage-holders seriously concerned about making repayments, it’s only natural that they’d be nervously eyeing the housing market and hoping things don’t slide,” Ms Lamont said.

“The double whammy of foreclosure and plummeting home value is a real concern for many.”


Mozo also found that one in 10 mortgage-holders did not shop around when obtaining a loan, even though switching from the average to the best rate on the market could save borrowers $2,631 per year on average.

Mortgage deferrals

Mozo’s survey findings revealed that among those who have paused their mortgage repayments, 29 per cent had lost their jobs and 16 per cent had experienced a pay cut, although a majority had remained unaffected by the downturn.

When asked about restarting their mortgage repayments, 29 per cent felt that they could just afford to make interest-only repayments, while 27 per cent believed paying off their loan would be “touch and go”, and 3 per cent said they would not be able to service their loan at all.

Mozo noted that a 3 per cent default rate across mortgages would equate to nearly $7 billion in loans.

Almost two-thirds (62 per cent) of mortgage-holders are concerned about selling their home or foreclosure, the Mozo survey found.

[Related: Owner-occupiers drive housing finance bump: CoreLogic]

Mortgage prisoner trap hinders refinance goals
Mortgage prisoner trap hinders refinance goals

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Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.

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