First published on Josh’s newsletter in April 2026; brought across to the Value Lending blog in November 2026.
There’s a particular frustration that’s showing up a lot right now. A borrower has been managing their mortgage without difficulty — repayments made, no missed payments, nothing out of the ordinary. They want to refinance to a better deal. And they’re told they can’t.
No explanation that fully satisfies. No obvious path forward. Just a no.
What’s actually happening, in most of these cases, is this: the borrower is being assessed not against the rate they want to refinance to, but against that rate plus three percent. It’s called the serviceability buffer, and it’s a regulatory requirement that’s been in place since 2021. Its purpose is to test whether a borrower could still manage their repayments if rates rose significantly above wherever they are today.
In a low-rate environment, that buffer produces a stress-test rate that’s high but still passable for most borrowers. In the current environment — with the cash rate at 4.10% and standard variable rates sitting considerably above that — the buffer produces a stress-test rate that excludes a meaningful portion of otherwise capable borrowers.
The borrower isn’t the problem. They’re meeting their obligations. But the assessment is designed for a hypothetical version of the future where rates are significantly higher than they are today, and at today’s starting point, that hypothetical scenario produces a number they can’t clear.
This is the part most people don’t see, because it’s invisible from where they’re standing. The rejection doesn’t come with a mechanism attached. It just comes.
What it’s worth understanding is that this is a constraint produced by the current rate environment — not a verdict on the borrower’s financial standing. The same person, the same income, the same loan balance, in a lower-rate environment, would likely clear the assessment without difficulty. The math changes when the baseline changes.
That doesn’t make the frustration less real. But it does make it a different kind of problem — one with a clearer shape, and eventually, a different set of conditions.