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Brokers prepare for a surge in refinancing, following the central bank’s decision to raise the cash rate by 50 bps.
As several lenders have announced interest rate rises on mortgage and savings rates, following the Reserve Bank of Australia’s (RBA) decision to increase the cash rate by 50 bps to 1.35 per cent, brokers expect more refinances ahead.
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ANZ, CBA, NAB will be the first to pass on the cost to borrowers from 15 July, with Westpac moving on 20 July.
CBA’s group executive, retail banking, Angus Sullivan was encouraging borrowers to utilise the bank’s tools to help them manage and track their repayments online or reach out to the bank’s financial assistance solutions team if they are “falling behind with repayments”.
General manager of home loans at Compare Club, Matthew Gatt, said they had seen “record number” of refinancing inquiries this year.
“The good news is that there are still some very competitive fixed term loans available when you look beyond the big four banks, but there’s no telling how long they’ll remain on the market for,” Mr Gatt said.
“There’s also some great variable rate options too, so mortgage holders and purchasers have more options than ever to choose from when reviewing their mortgage through a broker.”
CBA will see its standard variable rate for an owner-occupier principal and interest (P&I) mortgage increase to 5.80 per cent p.a, ANZ’s new index rate will be 5.64 per cent, NAB’s new standard variable rates for owner-occupiers will sit at 5.77 per cent and Westpac’s will hit 5.73 per cent.
Given the increase in mortgage payments, Mr Gatt said there were strategies that households can employ, such as paying extra on their mortgage or speaking to their lender to renegotiate their loan.
Similarly, executive director at Connective, Mark Haron, expects refinancing to increase this year.
“Demand for home loan refinancing is expected to increase with almost 40 per cent of Australians on low fixed rate contracts due to expire shortly, and with variable loan rates increasing,” Mr Haron said.
As brokers have access to the latest rates and products on the market, the role of the broker is set to become “more important”, he said.
Mr Haron said brokers have an opportunity to guide home buyers through challenging times.
With fixed rates significantly higher – up to 6 per cent in some cases – principal broker at Zippy Financial Louisa Sanghera said fixing rates was likely too late for most people.
“Borrowers should consider whether locking in these significantly higher rates is likely to benefit them in the long-term because no one knows when the current rising interest rate cycle will end,” she said.
Ms Sanghera added it was a good idea for borrowers to assess their personal cash flow and discretionary spending, which may include “reducing discretionary spending”.
In addition, as Australians have built up a large savings buffer, up to two years ahead in some cases, the additional costs on repayments could see many dipping into their reserves, chief of research and economics at Domain, Nicola Powell, said.
“It will also weigh on household savings and result in some having to dip into savings to cover the additional home loan costs and living essentials,” Ms Powell said.
Market correction welcomed
While this is ostensibly more bad news for borrowers, chief executive at Joust, Carl Hammerschmidt, said a correction in the market couldn’t come soon enough.
“The reality is that borrowers will face continued uncertainty over the next 12 months. It will only be once we see market normality return, with stability in tow, that borrowers will know where they stand,” Mr Hammerschmidt said.
“The speed of further interest rate normalisation by the RBA will be, at least in part, dependent on how well businesses and families react to these higher borrowing costs, as well as the pace of real wage gains in the short to medium term.”
One industry that has been hit by high inflation and demand is the construction industry, with several companies closing their doors over the past year.
Real Estate Institute of Australia (REIA) president, Hayden Groves, said while the nation is feeling the pain of rate rises, the low-interest rate environment was a key contributor to the inflated house prices seen in recent years pushing many first home buyers out of the market.
Mr Groves said Australians still want to own their own home and have access to affordable housing, urging for a national plan to address housing affordability and supply.
Recognising the challenging time ahead for many Australians, with high inflation and rising interest rates, Treasurer Jim Chalmers said the government is “working hard” to deliver on its commitments to boost capacity of the economy and reduce the cost of living.
Mr Chalmers said it’s why the government “fought for an increase” to this year’s minimum wage.
“It’s why we’re making meaningful investments in cleaner and cheaper energy, cheaper child care, skills, the digital economy and manufacturing, and progressing our waste and rorts audit,” Mr Chalmers said.
[Related: RBA bumps cash rate another 50-bps]
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