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The mortgage brokerage has urged borrowers to “sharpen the pencils” and seize opportunities in the cash rate hikes.
At its monetary policy meeting (2 August) the Reserve Bank of Australia (RBA) board decided to increase the cash rate by 50 bps for the third month in a row (which followed May’s 25-bp bump).
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This has taken the cash rate to 1.85 per cent, firmly away from its historic low of 0.1 per cent, but below the pre-COVID decade average of 2.56 per cent.
While the cash rate steers towards 2 per cent, Finni Mortgages’ chief executive Paul Glossop expects the cash rate to stay below 3 per cent, as the cash rate hikes begin to have their desired effect.
Given the recent fall in house prices and higher mortgage repayments, on the back of rate rises, it’s now widely anticipated the RBA will achieve its desired effect to contain inflation as demand in the economy begins to ease.
Speaking on the Smart Property Investment podcast, Mr Glossop said the markets are not as “bullish” as prior expectations, with some analysts previously saying it could hit above 4 per cent.
“We expect we’re probably going to see around about a 2.5–3 per cent cap, which will probably be achieved by early quarter next year," Mr Glossop said.
He expects a rate cut cycle to commence around mid-next year, which could bring the cash rate back down to the 1.5 per cent figure sometime thereafter.
“It’s going to be a bit of a roller coaster. We’re going to see it go up and then likely come down and find a bit of an even keel around about Q3, Q4 next year,” Mr Glossop said.
Broker opportunities
While the rising interest rate environment will hurt the hip pockets of many Australians, it’s not all bad news for borrowers, particularly investors, Mr Glossop said.
He said interest rate rises can pose an opportunity “to buy, and buy well”, which in turn poses an opportunity for brokers.
“This is the time now where we’re seeing some huge opportunities to start considering buying,” Mr Glossop said.
“We’re only going to get this opportunity probably once every three, five or 10 years, and typically it’s more the latter than the former.”
Mr Glossop said given the opportunities in the market, people will be calling on their broker for refinance opportunities and investment opportunities.
Explaining that banks make a significant portion of their money on “loyalty tax”, the tax that we pay for being lazy.
“Essentially what we’re seeing now is that there is a discrepancy somewhere between 0.7 per cent and 0.9 per cent interest for every single holder of an existing loan with the big four banks versus new clients,” Mr Glossop said.
“What that means is that if you’ve got a million dollars…[and] if you’re an existing client, you are essentially getting slugged anywhere between 0.7 per cent and 0.9 per cent more on the equivalent loans than if you were a client who was going to apply for a new loan.
“Because ultimately they’re hungry for that new business and anyone who’s going to sit back and think that they’ve got the best deal because they’re loyal to the bank – think again.
“This is the time where anyone who’s thinking that they need to sharpen up their rates, need to reach out to their broker.”
He said banks are offering cashback and incentives to lure in new customers.
“We’re seeing banks as well as non bank lenders offering anywhere between $2,000 and up to $7,000 cash back depending on the loan size and LVR,” Mr Glossop said.
In addition, Mr Glossop explained the average investor who has an LVR of better than 80 per cent is able to improve their interest rate between 0.4 and 0.5 per cent with an equivalent product, he explained.
When crunching the numbers, he said that could save some borrowers up to $5,000 a year on average million-dollar debt, which is the key role of the mortgage broker.
While the bank’s rates vary, he said there are still many options for the mid to low 3 per cent range.
“There is plenty of flexibility even for those higher LVR positions,” Mr Glossop said.
“This is the opportunity for people to really sharpen the pencil and set themselves up for the next five to seven years and beyond.”
[Related: Refinances anticipated amid rate hikes]
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