Fixed rate volatility could hurt brokers

by Adam Smith14 Mar 2013

Volatility in fixed rates could end up having a negative impact on brokers who aren't careful, a bank has claimed.

Citibank head of marketing, product and strategy for mortgages, Belen Lopez Denis, has told Australian Broker that the bank is now seeing a higher degree of volatility in yield curves, which has the potential to significantly impact fixed rates.
"We've found a lot of volatility in the yield curve. It can go 10bps up, and the following day it comes down by five. There's a lot of uncertainty around potential future rate cuts, if any," she said.
Lopez Denis said this volatility could end up impacting brokers. If borrowers choose a fixed rate product, she said the lead time between application and settlement could mean a significant change in rates.
"Because of the long lead time between application and settlement is quite long, if fixed rates go up the customer can find a completely different rate on offer after settlement. After brokers have put all the effort into packaging a deal and getting it approved by the lender, if the customer is seeing a different rate at settlement they're likely to pull out."
She warned brokers that this kind of volatility could impact on conversions. Lopez Denis touted the bank's rate lock, and urged brokers to hedge their bets against changing rates.
"It's quite important for the broker to talk to the customer about the risks of picking a fixed rate today. That's the reason we feel our 60-day free rate lock offer is so valuable to brokers and their clients," Lopez Denis said.
While fixed rates have continued to plumb historical lows, Lopez Denis warned that the trend could be set to come to an end.
"I think there's going to start to be pressure for fixed rates to go up. It's very rare to have fixed rates lower than variable rates. At some point in time, it has to revert to normality."


  • by Country Broker 14/03/2013 10:11:58 AM

    How about we talk about paying a lock in fee

  • by moonae 14/03/2013 10:16:07 AM

    Seriously. I've been in this game for 25 years and the Banks haven't changed. They scare punters as rates are rising into fixed rates and they scream we've hit bottom as they are dropping. mark my words. When Banks are talking about fixed rates potentially going up, they are not. Quite simple. A lesson for all you young Brokers out there, when the first Bank raises its fixed rates then we've hit bottom. Banks also talk about fixed rates like they are a commodity. Fixed rates are a risk mitigant not a price. Each client situation is different and Banks telling people to consider fixing gets my goat up. I'll advise my clients, Banks, you just provide a competitive product and stay out of the advice.

  • by Broker - 15 Years 14/03/2013 11:10:53 AM

    Volatility in Interest Rates is not an uncommon phenomenon and therefore it has always been a standard protocol for professional mortgage brokers to discuss, explain and offer the option of a "Fixed Rate Lock-In" with every borrower who is considering a Fixed Interest Rate.

    To not do so would likely be deemed "Negligent".