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Australia’s broken mortgage market — practical ideas for better products

Australian borrowers carry far more risk than lenders — and far more than borrowers in comparable countries.

This report:

examines how mortgage design contributes to housing stress, and
outlines practical reforms that could make home loans cheaper, more predictable and fairer for Australian households.

This research has been possible thanks to funding from the Victorian Legal Services Board Grants Program and in collaboration with Mortgage Stress Victoria.

Australian borrowers carry most of the risk

Australian mortgage products are designed so that financial shocks such as interest rate rises are largely absorbed by borrowers rather than shared across the system.

Variable-rate mortgages dominate but predictability is limited

Most Australian borrowers are offered variable-rate loans where rate rises are passed on quickly, while rate cuts are not always given for existing customers.

Mortgage stress supports depend on the lender, not the borrower’s circumstances

Support during hardship varies depending on loan type and lender, meaning people in similar situations can receive very different outcomes.

Australia is an outlier internationally

Comparable countries — including Canada, the United States, the United Kingdom and South Korea — as well as the European Union, offer more stable mortgage options, including long-term fixed rates, tracker mortgages and standardised hardship protections that reduce household risk.

Better mortgage design would benefit households and the financial system

More predictable mortgage costs can reduce defaults, improve household stability and lower systemic risk across the banking and finance system.

Mortgage design is a policy choice, not a market inevitability

International examples show that government action can shape fairer, cheaper and more predictable mortgage markets.

Where to from here?

Government intervention is needed to reform mortgage products, improve hardship protections and reduce unnecessary costs like Lenders Mortgage Insurance.

The Federal Government should establish an independent mortgages inquiry comprised of experts in economics, consumer policy and financial markets and supported by a secretariat to undertake a yearlong inquiry.

In the meantime, there are steps other parts of the system can take to help create cheaper and fairer mortgages in Australia.

Lenders
The lending sector could experiment with more innovative mortgage features that provide greater certainty for borrowers.
This could include options such as fixed-payment variable loans or tracker mortgages that move more transparently with benchmark rates.

Government
The Federal Government could direct the Australian Securities and Investments Commission (ASIC) or the Australian Prudential Regulation Authority (APRA) to collect and publish more detailed information about the Lenders Mortgage Insurance (LMI) market — including its size, claims ratios and how consumer refunds are handled when borrowers refinance.

Regulators
ASIC could build on its existing work reviewing lender hardship responses by assessing whether borrowers receive consistent outcomes across the market. This could help inform the development of a clearer national mortgage charter setting baseline protections for all borrowers. At minimum, the standards in the Australian Banking Association’s Banking Code of Practice should apply to all lenders.

Insurance industry
The insurance sector should clarify how LMI is captured under industry codes and outline clearer expectations for how insurers treat customers who are selling homes or experiencing financial hardship.

Next steps

CPRC welcomes the opportunity to work further on this issue with government, regulators, policy makers, and academics.

If you are in one of the above groups and would like a one-on-one briefing for your organisation, contact our team today

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Download Key Insights

This research has been possible thanks to funding from the Victorian Legal Services Board Grants Program and in collaboration with Mortgage Stress Victoria.

Australia’s broken mortgage market — practical ideas for better products

Key findings

Australian borrowers carry most of the risk

Variable-rate mortgages dominate but predictability is limited

Mortgage stress supports depend on the lender, not the borrower’s circumstances

Australia is an outlier internationally

Better mortgage design would benefit households and the financial system

Mortgage design is a policy choice, not a market inevitability

Where to from here?

Next steps

Links

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