Interest rate hikes and increased processing times create mortgage refinancing strain as arrears rise, says Equifax

SYDNEY – 8 June 2023 – Higher interest rates coupled with increased processing times in loan application approvals are making it harder for mortgage brokers to secure refinancing for their customers at a time of rising arrears, according to new research conducted by Equifax, the global data, analytics and technology company.

Released today, the Equifax Mortgage Broker Pulse Survey 2023* explored the perspective of brokers and consumers to understand the impact of increasing constraints on the industry.

Mortgage brokers are struggling to keep up with demand as borrowers look to refinance and ease the cost of living pressures. For 38% of them, rapidly increasing interest rates are impacting applicants’ eligibility for loans and have caused the most significant delays to application approvals over the past 12 months. Respondents said lender Service Level Agreements are also a cause of delays. While there was a significant drop in the number of brokers identifying this as a leading concern (from 56% of respondents in 2022 to 31% of respondents this year), this remains a critical aspect, followed by affordability constraints due to inflation and static wages (11%). 

According to the latest Equifax Quarterly Consumer Credit Insights for March 2023, mortgage demand is down -11.1% year-on-year; however, while overall mortgage demand is declining, refinancing is on the rise. Equifax data also shows that up to 44% of all mortgage demand was made up of refinancing enquiries in April. Brokers expect this trend to continue, with 22% of surveyed brokers expecting to take on more refinancing loans for individuals in the next 12 months as borrowers continue to search for lower interest rates.

This view is supported by numbers from the Australian Bureau of Statistics that show refinance activity hit a new record high of $21.2 billion in March, with the value of external refinancing 28.5% higher compared to a year ago.

“Our survey highlights some of the challenges mortgage brokers are facing as mortgage refinancing increases. It also shows that they are looking for ways to harness technology to improve efficiencies, increase productivity and boost margins,” said Moses Samaha, Executive General Manager, Equifax.

To remain competitive this year, 16% of brokers have completed more borrowing capacity assessments, while 15% have increased lead generation and follow-up work. However, 21% of brokers say they are concerned they are spending too much time keeping up to date with the offerings of lenders. Staying informed about regulation and compliance is also considered important by brokers (28%).

Disconnection with consumer demands
As the rapid rate of change in the economic environment is making it harder for brokers to secure refinancing options for their customers, it is impacting their business and putting consumers in a more precarious financial situation.  

However, other factors may also be impacting broker businesses. For the first time, the Equifax Mortgage Broker Pulse Survey 2023 also interviewed consumers, exploring their perspectives on what is critical when signing up for a mortgage.

“While consumers are feeling most concerned about the impact of interest rates (32%) and their financial situation (22%), we could see that there is a gap emerging between what consumers expect and what the brokers consider relevant. These are things that don’t depend on the economic context and could easily be the differential for many businesses. With 1 in 4 respondents saying trust in the broker is an area of concern when applying for a home loan, not addressing any potential disconnects can seem like a missed opportunity,” said Samaha.

Sustainability, for instance, is a priority for 30% of consumers surveyed. However, only 4% of brokers would have placed green loans at the top of their lists when considering what their customers want. Similarly, 38% of consumers said their broker could provide more support and better service when they were first approached and during the preliminary assessment, but only 9% of brokers focused on the initial consultation and even fewer (8.7%) on the preliminary assessment.

Mortgage brokers adopting digital and AI tools
More mortgage brokers are seeking competitive advantage through adopting technology, with 21% indicating the use of digital and AI tools to improve efficiency. Meanwhile, 16.5% of respondents intend to adopt new digital solutions to automate processes in the next 12 months, while an additional 17% will adopt new digital solutions to improve customer experience.

Digital ID verification, client affordability assessment platforms, and tools for improving business processes are all being used by brokers to enhance customer experience. 

“While there are some areas where broker and customer expectations aren’t perfectly aligned, providing a top customer experience is still very important to the broker community. By tapping into emerging technologies, brokers can better understand their customers' needs and continue to be trusted partners to consumers, particularly in turbulent times," said Samaha.

*The Equifax Mortgage Broker Pulse Survey, an online survey across 569 brokers and 416 consumers, was conducted by Equifax in May 2023. Figures quoted here have either been rounded up or down to the nearest percent.

ABOUT EQUIFAX INC.
At Equifax (NYSE: EFX), we believe knowledge drives progress. As a global data, analytics, and technology company, we play an essential role in the global economy by helping financial institutions, companies, employers, and government agencies make critical decisions with greater confidence. Our unique blend of differentiated data, analytics, and cloud technology drives insights to power decisions to move people forward. Headquartered in Atlanta and supported by more than 14,000 employees worldwide, Equifax operates or has investments in 24 countries in North America, Central and South America, Europe, and the Asia Pacific region. For more information, visit www.equifax.com.au or follow the company’s news on LinkedIn.

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The information in this release does not constitute legal, accounting or other professional financial advice. The information may change, and Equifax does not guarantee its currency or accuracy. To the extent permitted by law, Equifax specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release and the data in this report, including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.