For months now, we’ve all been hearing or talking about the ‘fixed rate cliff’. With reports that somewhere in the region of 880,000 mortgages in Australia will be affected this year by this looming change, our advice to you is to get on the front foot.
Whether you are an investor or an owner/occupier, those on fixed rate loans are about to experience a painful adjustment. According to Financial Review figures, somewhere in the region of 23% of all outstanding mortgage loans will be repriced during this year and with the height of the pandemic delivering rates as low as 1.8%, increasing to the current rate (some as high as 6%) is going to have a hugely significant impact on the family budget. For some it may even be the straw that breaks the camel’s back, and the subsequent impact on the wider economy is also likely to be challenging.
So, how did we get here? During the Covid years, interest rates fell to an all time low to try and protect the economy from a once-in-a-lifetime recession. In conjunction with this, the RBA gave banks and other lenders special dispensation to obtain fixed-rate credit for a three year period, which the banks and lenders then passed on to borrowers. This led to a boom in fixed rate borrowing and refinancing, with the majority of these mortgages being locked in for two or three year terms. By mid 2021, roughly 45% of new loans were being fixed. So as those two and three year terms start to expire, here we find ourselves at the edge of the ‘fixed rate cliff’.
Over the remainder of this year, the huge number of people coming off these fixed rate terms will find themselves trying to absorb the totality of the rate rises we have seen over the past year - all 350 basis points of them.
But it’s not all doom and gloom. If you are proactive, it is possible to navigate this challenging period and come out far less unscathed than others. The best way to be prepared for what is coming is to chat with an industry expert, and do it now.
Contact our Home Loan Specialist Ollie Lum, and book an appointment for a complimentary and confidential meeting with him today. He is one of the best in the business, and works with a huge range of lenders to ensure that you get the best result.