February 14, 2023
After nine consecutive interest rate hikes, Australian borrowers with a fixed-rate home loan will likely face a significant increase in mortgage repayments when their loan term ends. A survey of more than 1,000 Australian home loan customers has found that 71% of borrowers are concerned about coming off their fixed term rate, and 55% already feel stretched financially. The survey was commissioned by Mortgage Choice and conducted by Honeycomb Strategy.
Close to half of the survey respondents currently have a fixed rate, or a split loan with part of the loan on a fixed rate and the rest on a variable rate. Broker customers were more likely to have a fixed rate or split loan (48% compared to 40%).
While 61% of respondents said they chose to fix their rate to protect against interest rate rises, this figure increased to 81% for customers over the age of 55. Data from the ABS shows that 43% of 55–64-year-olds and 13.4% of people aged 65-74 are paying off a mortgage.1
Mortgage Choice CEO Anthony Waldron said, “We’re concerned about how many older Australians, who may be on a pension or budgeting for retirement, are approaching the so-called ‘fixed-rate cliff’. If they’re not financially prepared for the increase in their repayments, it will come as a nasty shock.”
Recent data from the Reserve Bank of Australia (RBA) shows that hundreds of billions of dollars in fixed-rate home loans will expire by the end of 2023. The RBA predicts that these borrowers could see their home loan interest rate increase by 3–4 percentage points when their fixed term ends, and they move to a variable rate.2
In the Mortgage Choice research, one-third (33%) of fixed-rate home loan customers said they would contact a broker at the end of their term for help securing a better deal. A further 21% said they would try to find a better rate with a different lender instead of staying with their current lender. Concerningly, 16% of respondents said they don’t know what they’ll do at the end of their fixed-rate period.
“The research showed us that home loan repayments are already the biggest monthly expense for 80% of people,” said Mr Waldron. “Financial stress is already an issue, and each interest rate rise exacerbates the problem further.
“If you’re on a fixed rate, your broker can help you put together a plan so you’re prepared for what happens when you reach the end of your loan term. There are plenty of options available to you that will lessen the financial impact. Refinancing may be a good option for you, or your broker can try to negotiate a better rate with your current lender. Regardless of what you decide to do, having a broker in your corner and a sound plan in place will provide you with better options.”
1 Australian Bureau of Statistics, The Survey of Income and Housing (SIH), Housing Occupancy and Costs 2019-20 (released 25 May 2022)
2 Reserve Bank of Australia Financial Stability Review, October 2022