Borrowers to feel pain, confusion after rate rise

But plenty of buyers waiting in the wings, say brokers

Borrowers to feel pain, confusion after rate rise



Two mortgage brokers in Brisbane and Melbourne say they expect some borrowers to experience negative impacts after the Reserve Bank of Australia’s surprise cash rate rise to 3.85% this week.

North Brisbane Home Loans’ Luke Ashby (pictured above left) said a poll he conducted on Instagram soon after the RBA’s rate rise in May showed most of his following were now either expecting more rate increase “pain” this year or “had no idea” what was coming because the RBA was confusing them.

“I think we will now see a bit of confusion and a bit of standoffishness from buyers,” Ashby said. “I think there will be some people holding off just to see what the next couple of months will bring.”

“The hold on interest rate rises in April gave people more confidence that maybe that was it in terms of rate increases and it would maybe start to come down – it drove inquiries from people who were thinking that they should get into the market ASAP before rates start coming down again.

“I think now it will be a bit of a ‘watch this space’ for the next three months to see what the RBA actually do – it’s a bit of a funny one, and I think it will definitely throw a few people off.”

Christopher Borg (pictured above right), director at Borg Financial in Melbourne, said the latest rate rise would add “fuel to the fire” after a high number of rate rises over a short period of time from the RBA since 2022.

He said rate rises were putting low to middle income households in jeopardy by reversing the “free handouts” given during COVID at a time when they were struggling with cost of living pressures.

“I believe what we are seeing is a mismanagement of our monetary and fiscal policy in Australia because this is going to put an unnecessary strain on a particular class of individual,” Borg said.

Borg, who often deals with higher-net-worth or higher income individuals, said these clients would have more flexibility to manage rate increases, such as raising rents on investment properties.

However, that would only put further pressure on renters, he said, while many middle-class property owners would be facing the difficulty of increased payments on their mortgage debt.

Borg said many borrowers were already facing the choice of “toughing it out or having to sell”, and if they sold would likely have to accept lower prices due to property price and equity declines.

Research released by the FBAA, conducted by McCrindle before the RBA’s latest increase, found that borrowers have been facing personal, social and mental impacts due to surging interest rates.

The report showed 50% of those with a mortgage have experienced greater stress while more than a quarter reported tension in partner or spouse relationships.  Nearly half said they felt uncertain about the future, while there has also been a significant spike in people seeking mental health help.

Fixed rate customers to suffer while buyers wait to enter

Ashby said there were more people coming off fixed rates now, and his business was starting to see more customers who were proving difficult to help when they wanted to refinance.

“These borrowers were on a 2% fixed rate and are now facing rates of 5.5% on average plus the assessment rate, so we are coming across customers who will not be able to service – they essentially can’t move, and are becoming prisoners where they are,” Ashby said.

He said the latest 0.25% increase would hurt people like this who were “on the edge”.

“This increase will be painful for people who have overextended themselves, but who at the time did not think they were doing so. They may have not been thinking about what interest rates have done over a long period of time, and were not thinking too far ahead,” he said.

Ashby said North Brisbane Home Loans was focusing on educating clients to give borrowers strategies to cope with further rate increases, as well as having good conversations around fixed and variable rates, and raising awareness of “where things could get to” when it came to interest rates.

“It’s about saying close to them and supporting them with things like regular reviews and the best rate possible when they come off fixed rates, because it can be quite ugly,” Ashby said.

Borg said repricing and getting the “absolute best rate” with existing lenders would continue to be a big focus for his business, with some customers waiting for rates to stabilise before refinancing.

He added that a lot of fixed rate borrowers were not prepared for the jump in payments they would experience after reverting to variable rates, and a lot are already looking at selling now.

“It will be interesting to see what happens over the next three months, because we just don’t know how the property market will fare once these fixed rate loans come off,” Borg said.

There are a lot of buyers waiting in the wings to seize opportunities as the borrowers suffer.

“In the last two months I would say I’ve done more pre-approvals for purchases than in the last year before it – it is unbelievable how many people want to buy right now,” Borg said.

“They say you should usually borrow against trends and whatever the media is telling you. When my clients hear about the downturn in the market and property prices are coming down, that is when they are really looking to buy back in.”

How are your clients reacting to the last RBA rate hike and are there better options for Australia?  Share your thoughts or stories on this topic in the comments section below.

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