The Reserve Bank of Australia has lifted interest rates for the fourth consecutive month, which comes as no surprise to the mortgage industry.
At its meeting on Tuesday, the RBA board decided to increase the rate by 50 basis points from 1.35% to 1.85% and the interest rate on exchange settlement balances to 1.75%.
Australian Broker spoke to three mortgage brokers about the impact of the RBA’s latest increase to the official cash rate.
Tasmanian brokerage Derwent Finance director Emmanuel Marios (pictured immediately below) said today’s interest rate hike would affect a lot of new and existing clients, especially if the banks were to pass the higher rate on to customers in full.
“As brokers, we have seen the data on the three recent interest rate rises and we can share this with our clients to show them what is happening,” Marios said.
“We are now seeing consistent rate rises. We need to educate our clients about this and ensure they are comfortable with their rate, whatever it might be moving forward.”
Marios said the interest rate increase would impact his client’s serviceability.
“For those who have pre-approved finance and were told they could purchase a property for up to a particular price before today, chances are their pre-approved figure has now changed,” he said.
“We now need to go back to these clients and inform them what this will mean for their pre-approval, take the required action and readjust this amount to ensure we are still on track for them to secure their right home.”
Marios said the RBA’s move meant homeowners needed to be frugal with their household spending.
“Sit down and review your lifestyle and do not buy unnecessary items,” he said.
“You need to create a rainy-day buffer as interest rates continue to rise. If people keep ignoring the rate rises, they might find themselves in a sticky situation.”
Marios said he encouraged his clients to print off the last 12 months of their bank statements and review any unnecessary purchases that had been made.
“The number one killer I find amongst my clients is online subscriptions (mainly streaming services). My advice is to cancel the ones you aren’t using and with the money you save, put it into a buffer or offset against your mortgage,” he said.
“Start cutting back now and adjust your lifestyle to accommodate today’s OCR increase. I also suggest visiting a broker to discuss any of your home loan concerns.”
Read more: New rate changes at ANZ at NAB
RBA Governor Philip Lowe said the board places a high priority on the return of inflation to the 2% to 3% range over time while keeping the economy on an even keel.
“The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments,” Lowe said.
“The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia's invasion of Ukraine and the COVID containment measures in China.”
Derwent Finance director Rhianna Farnan (pictured immediately below) said the RBA's interest rate decision was a good opportunity for brokers to communicate with their clients.
“We should take this opportunity to talk with them a little longer and discuss trends that are happening in the market,” Farnan said.
“We can say to our clients this is what your interest rate looks like now, however with more rate rises expected in coming months, this is what your repayments could look like in future. We all know how quickly the market changes.”
Farnan said as banks were likely to pass today’s interest rate hike onto its customers, brokers needed to review their pre-approved client’s serviceability.
“Purchasing a property is a stressful enough process as it is, so before your client finds a home and falls in love with it and decides to make an offer, ensure that if their pre-approved amount changes to let them know as soon as possible,” she said.
“There are signs that property markets are slowing down across the country and active buyers are now seeing this.”
Farnan said clients needed to review their budgets after today’s interest rate hike.
“Look at where you can save money in order to prioritise the roof over your head,” she said.
George Li (pictured immediately below), director of Sydney brokerage Leading Financial Solutions, said a rise in interest rates would see a reduction in borrowing capacity, therefore a greater need for customers to assess the options available to them was important more than ever before.
“A good broker can not only save customers money but provide them with a lending strategy for the future,” Li said.
“New property purchases might have somewhat slowed as clients are more reluctant to buy but the refinance market is still quite hot. There will definitely be more customers looking for better deals.”
Li said as mortgage repayments were going up, it had never been more important for homeowners to plan ahead and budget correctly.
“In 2023 there will be a large number of fixed home loans in the sub 2% range coming into variable and many homeowners will be hit with interest rates doubling that,” he said.
“My advice to Australians preparing for future rate rises is to budget correctly, plan ahead with a buffer on your loan repayments and speak to a financial planner or broker to get ahead.”