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As the fixed-rate mortgage cliff looms, new data has revealed clients are reaching out to brokers to secure a better deal.
With the Reserve Bank of Australia (RBA) expecting around $350 billion in fixed rate loans expected to roll off to a new variable rate, a survey of more than 1,000 Australian home loan customers has found that 71 per cent are concerned what the future holds.
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The survey was commissioned by Mortgage Choice and conducted by Honeycomb Strategy and also found that brokers’ clients were more likely to have a fixed rate or split loan (48 per cent compared to 40 per cent).
Given the 325 bp hikes since the start of the rate hiking cycle, those loans about to roll off fixed rates are expected to endure the full cost of the rate hikes.
Mortgage Choice CEO Anthony Waldron said the research showed that home loan repayments are already the biggest monthly expense for 80 per cent of people and 55 per cent were already feeling financially stretched.
“Financial stress is already an issue, and each interest rate rise exacerbates the problem further,” Mr Waldron said.
There were plenty of options available, he continued, and brokers are geared up to help put a plan together.
“Refinancing may be a good option, or your broker can try to negotiate a better rate with your current lender.
“Having a broker in your corner and a sound plan in place will provide you with better options.”
In addition, while 61 per cent of respondents said they chose to fix their rate to protect against interest rate rises, this figure increased to 81 per cent for customers over the age of 55.
Mr Waldron said: “We’re concerned about how many older Australians, who may be on a pension or budgeting for retirement, are approaching the so-called ‘fixed-rate cliff’.”
“If they’re not financially prepared for the increase in their repayments, it will come as a nasty shock.”
The Federal Treasurer has also cited concerns over these borrowers who took out a “mortgage relatively recently when interest rates were incredibly low,” and particularly “when the fixed component of their loan comes off”.
Borrowers serviceability plunges
Given the sharp increase in the cash rate and tight serviceability requirements, industry commentators have raised concerns more borrowers will be locked out of the market.
It comes as the Australian Prudential Regulation Authority (APRA) raised the serviceability buffer in October 2021 from 2.5 percentage points to 3.0 percentage points, meaning that new borrowers would be assessed 3 per cent above the lender’s interest rates.
Finance specialist Kirsty Colliver of Flair Finance in Dubbo said many borrowers no longer have the capacity to refinance the current loan even if payments can be reduced.
“I am noticing already people do not have the capacity to service loans they would like to, or could have serviced 12 months ago,” Ms Colliver said.
“It would be nice to see the lenders reconsider the assessment rate on proposed loans to give some more capacity back.
“Some lenders have a different HEM depending on postcode, so this also helps as the cost of living regionally isn’t comparable to Metro.”
[Related: Aussies spending decline starts as fixed mortgage cliff nears]
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