Borrowers not planning for rate increases

by Rebecca Pike28 Nov 2018

New data shines a light on borrowers’ concerns and financial attitudes, showing most are not taking advantage of low interest rates to pay off their mortgage.

The Canstar Consumer Pulse Report 2018 also looked at financial buffers saved by mortgage holders in order to cope with increasing interest rates and/or changes in their financial situations.

Forty-three percent of home loan borrowers said they have less than three months’ mortgage repayments stockpiled, which is the same figure as the 2017 survey.

Steve Mickenbecker, Canstar’s finance expert, said it worried him that people were not using the low rates to get ahead before rates inevitably rise.

He said, “The reality is since we did this last year, we’re a year closer to rates going up again. We are at record bottom low interest rates for home loans and we know they will go up. A year off, two years off, doesn’t matter. They’ll go up. 

“People underestimate what it means when they go up. They'll go up 0.25 for four or five moves. There'll be four or five increases.

“We’re probably 18 months, two months off. That's a couple of thousand dollars a month. People have to look at where they are today and say maybe I should be getting three or four or six months ahead while rates are low.”

Mickenbecker said while brokers’ primary role was to get people in to a home loan, they could also help borrowers understand their repayments.

He said, “For brokers it’s an opportunity to say to people, here’s your repayment, it’s a minimum repayment, think about putting a little bit away extra a month.

“It can be simple like putting away $50 extra a month or pay fortnightly so you effectively make an extra repayment a month.

“Those sorts of advice are at the beginning of a loan so people can set themselves up to say, the required repayment is a minimum, maybe I won’t be able to make more than that for the first two years but after that I can look at it. 

“The prime objective of course is to get people in the loan, that’s why people will use them and that’s a good thing. But if they can actually get their customers in a better financial position, well they’ll be back looking for an investment property or an upgrade.”

Canstar’s research also showed that 59% of people have not tried to get a saving on their home loan, but 25% of people had tried and succeeded to get a saving.

Eleven percent of respondents said they had tried but not succeeded in getting a better rate.

The figures also show there has been a decrease in the number of people saving for a home, down from 14% in 2017 to 12% in 2018.

Alongside this figure was an increase in concern about mortgage interest rates rising. Only 7% of respondents in 2017 were concerned over a potential increase, compared to 9% this year.

The figures also showed that significantly more people think house prices will gradually decrease over the next two years, increasing from 7% last year to 22% this year.

Six percent believe prices will crash at some point, up from 4% last year. On the opposite scale, 5% of people believe prices will skyrocket, down from 8% last year.

There has been a drop of 14% in the number of people who believe prices will continue to grow at a steady pace, from 47% to 33%.

Twenty-five percent believe prices will remain stable at current prices, up from 23% last year.

While the figures have moved around, Mickenbecker said they were not enough to make him less concerned.

He said, “People aren’t thinking about their financial position properly so they’re not saving to get ahead of their loan to improve their financial position to put a buffer in their home loans.

“It worries me the lack of planning that people are putting into their finances. It hasn’t changed much from last year.”