RBA has to consider the mortgage cliff – Finsure

That'll keep the central bank on the interest rate sidelines, chief says

RBA has to consider the mortgage cliff – Finsure


By Mina Martin

The Reserve Bank has just kept the official cash rate steady at 4.1% and will likely stay on the interest-rate sidelines given the large number of mortgage holders facing the fixed rate cliff, according to Finsure.

Simon Bednar (pictured above left), Finsure Group CEO, said the RBA has to consider the hundreds of thousands of mortgage holders on cheap fixed rates that roll off later this year and in 2024 who will suddenly have to deal with up to four percentage points of rate increases.

“I think rates will stay on hold as the RBA continues to monitor the impact of their previous increases,” Bednar said. “There is still the looming fixed interest rate impact for the RBA to consider. “I think there are around 40% of the lower fixed rate home loan terms set to expire by the end of 2023, and another 20% by the end of next year. This will continue to push inflation down as homeowners cut back on spending to accommodate the increase in mortgage repayments.” 

Bednar said RBA’s monetary policy tightening since May last year has led to a 30% cut in mortgage customers’ borrowing capacity and some borrowers may be unable to afford or refinance their existing debts.

“The Australian Securities and Investments Commission (ASIC) has reported a 28% increase in calls to the National Debt Hotline compared to a year ago and has urged large lenders to support customers facing financial hardship,” Bednar said. “This is also an important time for brokers to help their customers through the tough times.”

Peter White (pictured above centre), manager director of the Finance Brokers Association of Australia (FBAA), said the RBA decision to maintain the current rate is welcome news and will hopefully continue for the next few months.

“Mortgage holders need relief as they deal with what are in some cases very high increases in repayments,” White said. “The Australian economy and community also need time to settle so we can assess the real impact of these interest rate rises – financially and in terms of mental health.”

Louisa Sanghera (pictured above right), Zippy Financial director and principal broker, also commented on RBA’s decision, saying the latest Monthly Inflation Indicator falling more than market expectations made it increasingly clear that the rising interest rate cycle has likely come to an end.

“The July annual increase of 4.9% was down from 5.4% in June, according to the Australian Bureau of Statistics, with annual price rises continuing to ease significantly from the peak of 8.4% in December last year,” Sanghera said.

“While the decision today to keep the cash rate at 4.1% by the Reserve Bank of Australia – the third consecutive monthly rate pause – will be welcomed by borrowers, many are still facing significant mortgage stress.”

Data from Mom CFOs platform showed that more than half of borrowers could not refinance due to the high interest-rate environment.

“This means many are likely stuck in mortgage prison with home loans that are costing them more money than necessary because they are simply unable to secure a better deal elsewhere,” Sanghera said. “While it is possible there will be cash rate reductions next year, some homeowners may not be able to hold on until that becomes a reality – especially when they are already struggling with the cost-of-living crisis as well.”

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