‘Rate shock’ spikes borrower concerns

The research, which includes data from Lendi Group brokerage brand Aussie Home Loans (Aussie), has shown that 56 per cent of Australian mortgage holders believed the cash rate would only go as high as 2.5 per cent.

The central bank’s rate hiking cycle, which started in May, has been attempting to curb rising inflation.

Following six consecutive cash rate rises — some up to 50 bps — and with a cash rate of 2.6 per cent — more than half of mortgage holders are “in a place they did not see coming”, Aussie reported.

The broking group revealed borrower inquiry flows had been on the rise ever since the Reserve Bank of Australia (RBA) had begun increasing rates.

Indeed, the brokerage tracked consumer activity around each rate rise announcement between 1 May and 30 September 2022.

According to the Aussie data, refinance inquiries on RBA “rate rise Tuesdays” are up 157 per cent compared to all other non-rate rise Tuesdays. 

Additionally, there have been 107 per cent more refinance inquiries on a Wednesday following an RBA rate rise, compared to all other non-rate rise Wednesdays.

Further, there have been 24 per cent more refinance inquiries on the Monday preceding an RBA rate rise, compared to all other non-rate rise Mondays.

The research revealed the growing number of households reacting to each rate hike, most recently seeing a 70 per cent increase in households reaching out on the day of September’s rate announcement.

Lazy loans v lazy bones

This comes as Aussie data has revealed half a billion in “lazy loans” are left untouched by their owners over the past five years. This accounts for 25 per cent of the $2 trillion outstanding in the mortgage market across Australia. 

However, with so many Australians forced to increase repayments, pay for increased cost of living, and move towards a busy summer season, it is encouraging to see some action in place, the group has suggested.

7 hints borrowers really need to know right now

According to Aussie, there are further ways for customers to better manage their home loan and avoid mortgage stress.

Key points include: 

1. Freshen up on your fixed rate — Always know what your current rate is, and if it’s fixed, ensure you know when it ends.
2. If you’ve avoided financial literacy, now is the time — It’s the gateway to managing (or better avoiding) financial distress.
3. Know your mortgage buffer — Be one step ahead on what you can afford for repayments and what amount would put you on the path to financial strain.
4. Practice a mindful money approach — Pay attention to your full financial position, outgoings and incomings.
5. Refinance — A broker can show you home loan options with low or zero fees.
6. Look at mortgage market offers — A good broker will know the market for you and can help you take advantage of refinance cashback offers. 
7. Offset it — Consider an offset account to reduce the amount you pay in home loan interest. Again, your lender or broker can help you work out these numbers. 

Looking deeper past the numbers

Aussie Home Loans’ parent company Lendi Group CEO, David Hyman, spoke exclusively to The Adviser about the above key points.

Asked what percentage roughly of borrowers don't know when their fixed period ends, or how should brokers, if at all, remind clients of such, Mr Hyman replied: “Six in 10 (59 per cent) of mortgage holders on a fixed rate who have not yet made plans for when their fixed rate expires. A further two in 10 households admit they were not even aware of their fixed-rate expiry date.”

“$130 billion worth of fixed-rate loans due [are] to expire from mid-2023, and with mortgage revert rates typically higher than a lender’s discount variable rate, it means households face being automatically placed into significantly higher repayments, as soon as their fixed rate term ends.”

In terms of how borrowers can empower themselves - via courses, websites, group meetings etc – Mr Hyman explained: “Subscribing to mortgage and real estate news is always beneficial at a time when rates are changing especially.”

“A good relationship with a mortgage broker, however, means they will [keep] you abreast of changing rates and the market overall.”

Given the rising rate environment, and differences on repayment amounts, what size buffer/percentage is recommended per month, The Adviser asked.

“This is different per circumstances - working out what you personally can afford within your budget.

"If it is getting too much, [they should] speak to a broker - if [they] can't cut back in other areas, as refinancing and switching to a better rate can provide enormous relief.

"Often the first chat can show [borrowers their] options - this is particularly so if their current lender is still at the standard variable rate.”

Did the data reveal any disturbing outgoing trends or insights that need to be addressed amongst borrowers - or what has been the general feedback in recent times?

My Hyman said: “Our research is showing, for the majority, the first things that will go include entertainment (64 per cent), retail (59 per cent) and food (e.g. takeaway food, restaurants, bars etc. (56 per cent), while 38 per cent will cut down on cosmetics and 6 per cent will cut down on other things. Households overall are trying to cut back on costs before they tackle the important ones - that is where a mortgage broker can help to see where a different rate [or] lender can provide relief to [a] household's bottom line.”

Borrowers and brokers and crunching the numbers

In terms of refinancing and how it affects the consumer in the long run, My Hyman commented: “A broker can crunch the numbers with borrowers to show the difference in weekly, fortnightly, monthly mortgage repayments currently and into the future - inclusive of the costs of switching.”

“Cash backs are of most incentive when [borrowers] are also able to switch to a rate lower than what [their] existing lender is offering.

“Offsets are often a great strategy, but it always depends on [a borrower’s] circumstances; some borrowers will be able to benefit greatly over others - particularly if a borrower has savings.

“These savings in an offset, for example, if they [have] $50,000 on a $350,000 mortgage means you are only paying interest on $300,000 mortgage interest.”

[Related: Rising rates hitting split couples hard]