By Will Kiln | Published 9 October 2026 | Last Updated 9 October 2026
Interest rates, lender policies and market data referenced in this article are current as at October 2026. The RBA cash rate is 4.60%. Rates and policy change frequently — contact us for the latest figures.
A declined refinance feels personal. It usually isn't.
In almost every case we see, the borrower could comfortably afford the loan they're applying for — often it's the same loan they've been paying on time for years. What's changed is the policy on the other side of the desk. Four rate rises in 2026, a serviceability buffer that hasn't moved, and a new APRA cap on high debt-to-income lending have combined to make the test harder than the reality.
Here are the five reasons applications actually fail, and what to do about each.
1. The serviceability buffer
Lenders don't assess you at the rate you'll pay. They assess you at roughly three percentage points above it. With variable rates where they sit after the September increase, that means most borrowers are being tested at around 9.75%.
The absurdity is obvious when you're refinancing: you're being asked to prove you could afford a repayment substantially higher than the one you're already making, on a loan you're already servicing without a missed payment.
What to do: ask specifically whether the lender offers a modified or streamlined assessment for like-for-like refinances. A number of lenders will assess a straight refinance — same balance, no cash out, clean repayment history — using a reduced buffer, typically around one percentage point, under limited-exception policies. Not every lender offers it, the conditions are strict, and policy changes frequently. But it exists, and it's the difference between a decline and an approval for a lot of borrowers. It is not something lenders advertise.
2. The APRA debt-to-income cap
This one is new and it catches people completely off guard.
From 1 February 2026, banks and other ADIs can write no more than 20% of their new mortgage lending to borrowers with a debt-to-income ratio of six times or above. Owner-occupier and investor portfolios are measured separately, on a quarterly basis.
The critical point: this is a quota, not a credit assessment. You can be knocked back not because your application is weak, but because that lender has already used its allocation for the quarter. The same application, at the same lender, in a different month, can get a different answer.
Refinances are not exempt. The carve-outs APRA granted cover owner-occupier bridging loans and lending for the purchase or construction of new dwellings — not refinancing.
What to do: work out your DTI (total debt divided by gross household income). If it's approaching six, lender selection becomes a timing exercise as much as a policy one. Non-bank lenders aren't ADIs and aren't subject to the cap at all, which makes them a genuine option for high-DTI borrowers — at a rate premium. There's a fuller explanation in the 6x DTI cap, explained.
3. Living expenses and undeclared commitments
Lenders verify your spending against your actual bank statements now, not against a household benchmark. The benchmark is a floor, not a ceiling.
What trips people up:
- Buy-now-pay-later. Afterpay and Zip show on statements and are treated as credit commitments. Several lenders take a dim view of frequent use regardless of the amount.
- Credit card limits, not balances. A $30,000 limit you never touch is assessed as a repayment obligation — usually around 3.8% of the limit, monthly. Reducing or closing unused limits is the single fastest way to improve capacity.
- HECS-HELP. Counted as a reduction to net income once you're over the repayment threshold. Material for single applicants.
- Recent large one-offs. A wedding, a holiday, a medical bill in the three months of statements a lender reads can distort the picture badly.
What to do: clean up the three months before you apply, not after. Reduce card limits, pause BNPL, and if there's a genuine one-off in your statements, flag it in the application with an explanation rather than hoping nobody notices.
4. Income that doesn't fit the template
Lender policy is built around PAYG salary. Everything else requires a lender that has written policy for it, and they differ enormously:
- Self-employed applicants who don't have two years of returns — a real problem for anyone who went out on their own recently. Several lenders accept one year, and alternative-documentation policies exist. See self-employed refinancing.
- Bonus and commission income — some lenders take 100% with a two-year history, others 80%, others exclude it entirely.
- Casual or contract income — minimum employment periods vary from three months to twelve.
- Rental income — shaded by between 20% and 30% depending on the lender, with some also applying a vacancy assumption.
- Parental leave — policy ranges from "we'll use your return-to-work salary with a letter from your employer" to a flat no.
What to do: this is a lender-matching problem, not a you problem. The difference between the most and least accommodating lender on a single income type can be well over $200,000 in borrowing capacity. It's the most valuable thing a broker does.
5. Credit file and conduct
Lenders see comprehensive credit reporting — 24 months of repayment history on every account, not just defaults.
- Missed or late payments on any credit account, including phone and utilities in some cases.
- Multiple recent credit enquiries. Every application leaves a mark, and a cluster of them reads as distress. This is why shotgunning applications across three lenders is actively harmful — the second and third applications are assessed against a file that now shows the first two.
- Defaults, judgments, or a Part IX agreement. These age out, and specialist lenders will price for them before they do.
What to do: get your free credit report from Equifax, Experian and illion before you apply. Errors are more common than people assume, and they're fixable. If there's a recent blemish, time may be worth more than effort — some applications simply work better in six months.
What to do straight after a decline
1. Ask for the specific reason in writing. Under the Banking Code, you're entitled to know. "Serviceability" and "policy" are not answers — push for which test failed.
2. Don't immediately apply somewhere else. You'll compound the enquiry problem and likely fail the same test at the next lender.
3. Work out whether it's policy or capacity. Policy problems are solved by changing lenders. Capacity problems are solved by changing your position — reducing limits, clearing a car loan, waiting for income to season.
4. Ask your existing lender to reprice instead. If you can't move, you can still negotiate. A retention discount on your current loan requires no new credit assessment at all, and it's the most underused option available to borrowers who've been declined.
That last point matters. Being unable to refinance doesn't mean being stuck at your current rate. It just means the path runs through your existing lender.
Frequently asked questions
Why was my refinance declined when I've never missed a payment?
Most declines are policy-driven rather than conduct-driven. The serviceability buffer requires you to demonstrate you could afford repayments around three percentage points above the actual rate, and since February 2026 lenders also manage a quarterly cap on lending at six times income or more. A perfect repayment history doesn't override either test.
Does a declined application hurt my credit score?
The application itself is recorded as a credit enquiry, which has a modest effect. Multiple enquiries in a short period have a larger one. The decline outcome isn't recorded, but the enquiry is.
Can I refinance if I'm a mortgage prisoner?
Often, yes. Ask whether the lender applies a reduced buffer for like-for-like refinances with no additional borrowing — several do, under limited-exception policies. Non-bank lenders, which sit outside APRA's DTI cap, are the other route. Both need to be weighed against simply repricing with your current lender.
How long should I wait before applying again?
It depends on the reason. A lender-policy mismatch can be re-applied elsewhere immediately with the right lender. A capacity or credit-conduct issue usually needs three to six months of changed circumstances behind it.
Been knocked back, or worried you will be? Send us the decline reason and we'll tell you whether it's a policy problem with a solution or a capacity problem that needs time. No application, no credit enquiry, no cost.
This article provides general information only and does not constitute personal financial advice. Rates, costs and savings are indicative and will vary based on your individual circumstances and chosen lender.
Cumulus Capital Pty Ltd (ABN 16 695 377 229), Credit Representative Number 577081, is authorised under Australian Credit Licence Number 389328.