Fixed rate deals are only proving attractive for a small percentage of borrowers say brokers, despite analysis from Canstar that suggests the fixed rate window could be opening again.
The Reserve Bank of Australia hiked the case rate for the ninth time in a row in February, which Canstar said caused low cost loans below 4% to disappear altogether from the market.
The financial comparison website said with NAB predicting the cash rate will reach 4.1% by May, borrowers had the potential to save money by choosing the lowest cost fixed rate options.
Finance brokers say they are only seeing a small number of current clients looking to fix rates, though questions around choosing fixed or variable rates are a part of the discussion.
“There are still only quite a small percentage of clients considering fixed rates, however I do feel that this has increased since Christmas,” said Zest Mortgage Solutions director Melissa Wright (pictured above left), who is based in Brookwater, Queensland.
“Over and above this, we are most certainly receiving a lot more questions around fixed rates and existing clients are also reaching out to discuss.”
First Broker mortgage broker Jamison Banham (pictured above centre), based on the Gold Coast, said he had had a very small number of customers fix rates in the high 4 per cents as their lenders were offering competitive fixed rates around 0.25% higher than the variable rate at the time.
“As we were anticipating multiple rate rises, this was a good option and their rates are now lower than what their variable rates would have been today,” Banham said.
LoanLink finance broker Alma Zubovic (pictured above right), based in Melbourne, said most borrowers were seeking to remain variable, due to more of these loans allowing features like offset accounts and no limit on additional repayments.
“There is also the incentive of being able to refinance more frequently as many customers are looking to take advantage of the current cashback offers across the board,” Zubovic said.
“I have had the occasional client querying the fixed rate options available, however I’m seeing an overall hesitancy to fix over an extended period as customers are holding onto a sense of hope that there will be an overall stabilisation of the market towards the end of this year and into 2024,” she said.
When is a fixed rate right for a client?
Brokers agree that whether a fixed rate is right for a customer or not is heavily dependent on their current circumstances as well as their appetite for riding the wave of rate movements.
“Ultimately each client’s circumstances are different and the consideration to fix in an interest rate should come down to factors like budget, cash flow and their short and long term goals,” Wright said.
“Fixed rates do still have their place in the market to gives clients certainty of rate and repayment for a period of time. What the future holds is an ones ‘guess’ at the moment. What we do know is that we will continue to see movement – in either direction – with rates moving forward, and if that makes a client uncomfortable, potentially a fixed rate is for them.”
Banham said for customers with an existing loan, fixing with their existing lender may be an option if the fixed rates on offer are not greater than 0.50% of their variable rate.
“This factors in a couple of rates rises and may result in cheaper payments in the future,” Banham said. “Most lenders’ fixed rates are greater than 0.50% higher than their variable rate so it is not the best option when taking into account NAB’s forecast of three more cash rate rises and rate decreases in 2024.”
“It all really depends on the customer’s circumstances and what is going to be the most beneficial for them over the course of the loan term,” Zubovic said.
“Fixing a rate is all about buying peace of mind of knowing what your repayments will be each month of that fixed period regardless of what is happening in the market. Borrowers really need to evaluate how much their monthly repayments would be at any fixed rate offered and whether it’s worth paying that increased repayment in exchange for cost certainty.”
Zubovic added there is always the option of a split loan, which would enable borrowers to keep a certain portion of their loan variable and lock the remaining portion into a fixed rate.
“Doing so allows you to make extra repayments on your variable amount and clear your debt faster without paying any penalty fees.”
Canstar’s Effie Zahos said plenty of homeowners have timed locking in their mortgages perfectly, with even those now rolling off fixed rates onto higher variable rates having had a good run over the past couple of years. “Having said that, choosing the right time to lock in can be difficult,” she said.
“Borrowers considering fixing all or part of their loan need to consider what discount is on offer to lock in and how many rate hikes until they are on par again with the variable rates, keeping in mind if you do lock in for a long time and rates fall you may miss out on that downward swing.
“Right now, some homeowners would be able to lock in their loans without paying more than what the average variable rate is. If rates continue to rise, not only are they paying less now, but it gives them certainty for the fixed rate period. Of course, things can change and rate forecasts may not always ring true.”
Broker support key to any fixed rate decision
Zubovic said it was important for borrowers to remember that not every lender and loan product would suit their individual circumstances, which meant it was important for customers to engage their financial adviser and broker when having these discussions.
“As brokers we assist borrowers in weighing up the pros and cons as well as determining from a budgeting standpoint what the potential repayments and cost savings could be across a range of home loan products.”
Banham said he reiterates the importance of using a broker in discussions with customers to make sure clients choose the product and features that suit them, not just based on a rate.
“With the frequent rate rises it is important for borrowers to make sure they are comparing products correctly. The cheapest fixed rate product today might not be the cheapest fixed rate product tomorrow. Borrowers need to make sure they don’t get caught out, and use a broker to compare products and take into consideration additional rate lock fees and if rates are due to be increased at a certain date.
“I would suggest anybody looking to fix their rate contact a broker to do a cost-benefit analysis prior to making any decisions.”
