Brokers should prepare for a shift towards the certainty of fixed rates among their clients as the European debt crisis continues to bite, according to Citibank's Aaron Milburn.
Following a fixed rate cut on the 19th of December that sees the bank's 3-year fixed rate pegged at 5.75%, head of broker distribution Milburn said "natural human instinct is to look for certainty in uncertain times".
"Our current market environment is uncertain and it’s quite hard to predict what might happen in the medium or even short-term," he said.
"We are still monitoring very carefully the European sovereignty crisis, its developments, impact on the outlook for global growth and the flow on effects to other economies like Asia and ultimately Australia. We expect to see a paradigm shift in consumers’ minds and reactions to these developments."
Milburn said that fixing a portion - or even the whole - of a home loan are a reasonable option for borrowers to ensure stability in their monthly repayments and overall household budget.
He also indicated that now might be the most opportune time for clients to lock in a fixed rate.
"We conduct ongoing reviews of our rates (fixed and variable) based on the most recent cost of funds. We may be getting close to the end of this ‘dropping’ cycle for fixed rates, and they can climb fairly quickly if the yield curve reverses," he said.
Milburn said even if the RBA continues to cut rates in the new year, no-one is expecting a cut of the magnitude that has been seen recently in fixed rates.
"If clients are trying to budget and want more certainty in their finances, then it would make sense to consider fixing rates for 12, 24 or even 36 months," he said.
Milburn said brokers would benefit from knowing their customers would be with them, earning them consistant trail commission, during the period that the portion of their loan is fixed.
The differential between Citibank's variable rate is over 50 basis points when compared with its 3-year rate. Milburn said its 60-day rate lock feature was more important as fixed rates plumb new lows.
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