Fixed Interest Rates to Soften
Ordinarily, fixed interest rates are a decent guide as to where rates are likely to head in the near future. In recent days, fixed interest rates have started to drop, indicating that the majors see rates starting to peak.
Interestingly, Westpac’s chief economist predicted that we should expect numerous rate reductions in the first half of 2024.
If you listen to what is being reported by the Reserve Bank of Australia (RBA), interest rates will continue to climb until the baseline inflation rate returns to the 2-3 percent band. The RBA has hiked the cash rate multiple times since May 2022, resulting in home loan rates rising across Australia.
The talk of interest rate relief will certainly be good news for borrowers albeit when it comes to the prediction many are incorrect. Unfortunately, rising interest rates mean greater pressure on Australians’ mortgage repayments.
It must be said that the housing market is showing signs that the worst of the declines are behind us. However, the “fixed-rate cliff” will be an interesting time. The “fixed-rate cliff” came about when mortgage rates fell dramatically during the pandemic. Now, when the fixed-rate period on a home loan expires, the interest rate typically reverts to the lender’s standard variable rate. As a result, borrowers who are now coming off their fixed-rate period will face a sudden jump in repayments as they roll onto much higher variable rates.
In previous articles we have made comment about the 2.5-3.5 interest rate buffer introduced by APRA. APRA have no doubt been lobbied by the banks to review that number; as recently as yesterday, APRA confirmed that the buffer will remain in its current form. Is this terrible news for those borrowers looking to purchase or refinance in this climate?
What can you do for your clients when coming off their fixed-interest rates period?
With 70 per cent of all mortgages written by mortgage brokers, our expertise and knowledge, doubled with a significant and diverse panel of lenders, has never been more valuable.
Whilst this jump in repayments may come as a hefty shock to some borrowers and the average Australian household budget, it is essential to guide your clients throughout this current climate.
Be proactive, call your clients to provide them with information and advice, and to get an update on their situation. It is essential that you make sure that all your clients know they can rely on you for your honest and reliable advice. We recently wrote an article on how you can help your clients with interest rate uncertainty. Vision Aggregation recommend 5 strategies:
- Be clear with your clients on how you can help them.
- Call all your clients.
- Update your clients through your blog and social media.
- Record a video message for your clients.
- Increase referrer communication.
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There is no doubt that things will get better.
Rates will stabilise and eventually fall; property prices will find a base and inflation will normalise.
It is important to stay positive for your clients.
Did you know that Vision Aggregation assists our brokers with helping their clients?
At Vision Aggregation, we have a industry leading mentor program to support your business’s success. We have decades of experience in providing superior expertise to our clients. We know that being a mortgage broker can be tough, especially during an uncertain interest rate climate. That’s why, when you sign up to Vision and partner with us, you receive individual and personalised support. Join Vision today to see how we can support you, your clients, and your business.
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