Mortgage Cliffs and Minimizing The Fall
Many of you would be now very well aware of the so called ‘Mortgage Cliff’ facing many Australian households in 2023 & 2024.
According to an online ABC report 11/7/23 " At least 880,000 fixed-rate mortgages will expire this year, and another 450,000 in 2024. By the end of 2021 at least half of all new home loans being written were on fixed rates".
According to the Australian Bureau of Statistics (ABS) as at June 2022 the average mortgage size was $580000. It is currently estimated that there are approximately 6 million residential home mortgages in Australia.
So doing the math, the total fixed rates make up to around 22% of total home mortgages. Back in 2021 the banks were offering fixed interest rates at 2% and below in some cases, for fixed loan terms out as far as four years. As the 1.3 million fixed rate loans roll off to variable rates the increase cost to each borrower based on the $580000 average mortgage size, assuming they go to a variable rate of say 6%, can expect a weekly increase in payments of $306. Now this is a difficult enough pill to swallow as it is.
However, in many cases borrowers are being advised by their lenders that on rollover their rates will move to variable rates well above that 6% I mentioned. In one recent case of COMPASS lending, a client’s fixed rate expired 4/8/23. The major bank they are with, offered them a variable rate of 8.55%. We intervened on behalf of the client and negotiated their variable rate back to 6.05%, thus minimizing the impact of the rate rise. We are doing this on a regular basis for clients. It’s a matter of having the knowledge as to how to go about actioning this for you. COMPASS lending have that knowledge and expertise.
We are also closely watching where the fixed rates are sitting at present , as several lenders have already adjusted down their current offerings. They are still sitting marginally above variable rates but if the broader economy continues to slow we may see these fixed rates on offer fall further, and that may very well provide an alternative to borrowers to ease their budget pressures?
The effect of the ‘Mortgage Cliff’ may not be initially felt depending on what current level of savings the impacted households have. Most likely these savings will soak up some of the initial household budget pressure felt, spreading the impact over the medium term, perhaps out into 2025? Of course savings will eventually run out unless significant alterations are made to household income and expenditure. Regardless of what your budgeting and planning requirements are, COMPASS as a group, are here to assist. As you can see with the above example, we will get favourable outcomes, and always working in the best interest of you as the client.
Contact Michael on 02 6583 2211