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Get ‘on the front foot’ now with fixed-rate customers about to feel the financial impact of rate hikes, brokerage Smartmove has advised.
Citing a disturbingly ‘real’ example of what a fixed-loan customer faces next year as they move onto higher interest rates – an $8,500 hike per month in repayments – the chief executive officer of brokerage Smartmove, Darren Little, proffered key insights to the broking industry at AMP Bank’s credit webinar for 2022 on Tuesday (29 November).
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At the event, AMP’s head of intermediary distribution and governance Paul Herbert asked Mr Little about the current market conditions and what brokers and borrowers face going forward.
Cutting through the current economic machinations and focussing on those whose fixed-rate loans end next year, Mr Little unequivocally underlined the importance of ‘education’ of borrowers when it comes to what cash-rate changes translate to ‘in the real world’.
“I think [for] everyone in the industry, we've had two bumper years. It's been a pretty crazy couple of years,” he outlined.
“We've all written a lot of business, there’s a lot of customers we’ve been able to help,” he summarised.
“However, we've also got a lot of customers now that are potentially coming out of fixed rates that are going to have a significant jump,” he cautioned.
When asked how Smartmove was addressing that situation - and when – Mr Little stated: “As a business historically we don’t write a lot of fixed rates [loans], but two years ago there were a lot of rebates for fixed rates that drove great customer outcomes.”
“We rely on word-of-mouth referral, so for us it’s about education,” he emphasised.
“A lot of our senior brokers now in our business [are] already starting to pick up the phone, having conversations today for fixed rates [mortgage holders] that are going to roll off next year.
“[We are] starting to have those conversations around what does it look like when we are going from 1.8 per cent to 5.4 per cent.
“[We’re] starting that conversation today because… there’s going to be a shock. There's no question of it, but how can we help reduce that and ‘get on the front foot’ with that?” he posed, referring to the company’s strategy.
He further explained that, Smartmove has a lot of loans split with fixed rate and a variable rate, adding: “We want to keep them at the bank they’re at, but if we can tweak the variable slightly at the moment and then start the conversation around what it could look like,” that would better inform the customer as to what they ‘really’ face.
Come 2023 and reality bites - maybe
“There was a conversation only yesterday with a property investor we have and they’ve got an $8,500 change in monthly payment coming up in March,” Mr Little highlighted.
“They’re coming off interest only in [a] fixed period. They are rolling into P&I and, obviously, at a very different rate…
“Now rents are really good at the moment, they are going up – and property vacancies and all that are really light from a tenancy point of view, but it's not enough to cover an eight and a half thousand dollar [debt],” he said.
“So it's about that education piece today is really, really important,” he underlined.
“That's what we are doing, with our senior brokers … starting those conversations.
“[It’s] not dissimilar to where it was March 2020, when we picked up the phone to our customers around hardship and started really to talk about what we can do to help them,” he explained.
The impact of increasing payments in real terms
Customer ‘education’ on the need to change monthly budgets was also a focus for AMP as an organisation, Mr Herbert agreed.
Prompted as to what brokers and lenders alike can do to better prepare mortgagors for future changes, Mr Little explained: “As an industry, we had the governor of the RBA yesterday say sorry…
“I think, [it’s good for him to] call that out, but I think for all of us in the industry it's about education.
“It's about getting on the front foot, and not just sending out that letter and just saying ‘Oh, you've got $1,000 payment shock… it’s getting on the front foot.
“With our customers – whether it be a bank, whether it be a broker – and actually just helping them educate: ‘What does that mean? Does that mean that’s one less coffee a day you buy at the take-away shop sort of thing.
“Putting it into real world terms,” he said.
“We try to [actually] take it away from the number [because] 0.25 per cent means nothing. But if you say it’s an extra $80 a week that's real [and] that education piece is really critical.
“Because when it’s in dollar terms that's where the real difference is,” Mr Little advised.
He concluded: “We're are creating conversations today that [we] will only have more of next year - and all brokers will have them too...There's going be some financial impact.
“So we can start those conversations today about what they do next year, but it's not going to be as drastic because now we can start helping prepare for that.”
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