Our Sellers Need Us To Create Competition
We are no longer in a changing market. The market has changed.
Our sellers need us to create competition.
Our sellers need us to find the best buyers in the marketplace and create that fear of missing out that had been such a strong part of the property market throughout 2021 and early 2022 by putting those buyers in competition with each other.
I have the process to do that but patience is also what we need. .
Last week's feature article comes from the Australian Financial Review. The article discusses the fact that over the next few months many borrowers will have their fixed mortgage rate move across to a much higher variable rate.
The story with the headline " Fixed rate borrowers face an extra hit of almost $3000 a month" looks at what these additional interest payments may mean for homeowners, the property market and the economy.
Please see below.
Fixed rate borrowers face ‘extra hit of almost $3000 a month’
The next few months will be “challenging” for many borrowers who have never faced sharp increases in property funding.
Typical borrowers facing this year’s fixed-rate mortgage cliff will have to pay about $2700 more a month if they do nothing and are rolled on to their lender’s standard variable rate, says RateCity which monitors home loans.
But by refinancing to one of the lowest variable rates, they could reduce the increase to just $1600 a month – saving just under 40 per cent.
This is based on an owner-occupier repaying a $1 million principal and interest fixed loan. The example assumes the Reserve Bank of Australia will increase the base rate from 3.1 per cent to 3.85 per cent by May in line with Westpac and ANZ forecasts.
The figures assume the borrower will be coming off a two-year, 1.92 per cent fixed rate on to a revert rate of 7.16 per cent.
The same borrower, by refinancing to one of the lowest variable rates of 5.25 per cent, could reduce monthly repayments to about $5900, says RateCity.
Impact of coming off a Fixed Rate in May 2023
An alternative strategy, says RateCity research director Sally Tindall, is to haggle with the existing lender to have the loan increase cut – usually to about the rate being offered to new borrowers, which is estimated to be about 6 per cent by May. New borrowers are currently being offered about 4.84 per cent, which is estimated to rise by 0.75 per cent if the RBA continues to increase rates in line with market expectations.
In this scenario, the borrower would be paying an additional $2066 a month, or about $6300.
Borrowers such as Jacqueline Bottner and Tim Webster are faced with a double dose of rate rises because their split mortgage – 20 per cent variable and 80 per cent fixed – means their variable portion has been rising in line with cash rates.
“We have been putting away more money each month to meet rising costs,” says Jacqueline, a digital marketer, who lives with Tim, a project manager, in Petersham, an inner west Sydney suburb.
“If rates continue rising then we are going to have to start thinking about lifestyle changes by cutting back on expenses,” she says.
Jacqueline knows her options for the fixed rate portion are to roll on to the revert rate, switch to a new loan offered by the existing lender or refinance.
Don Crellin, managing director of mortgage broker Resolve Finance, says the next few months will be “challenging” for many borrowers who have never faced sharp increases in property funding.
Crellin says more than half of his borrowers will face interest rate increases in the second half of the year.
The so-called fixed rate cliff refers to the steep increase in costs for about $400 billion worth of fixed rate loans expiring this year.
“The bulk of fixed rate loans are coming off in the second half of the year, with the peak around July,” Tindall says. “But millions of dollars of fixed rate loans are already coming to an end.”
Of the $2.1 trillion in home loans, the RBA says about 35 per cent, or $735 billion, is fixed rate – 65 per cent of these are due to expire by the end of 2023.
Fixed rates increased from about 15 per cent to 46 per cent of all home lending in July 2021 after the RBA dropped the cash rate to a record low 0.10 percentage points, according to CoreLogic, which monitors property markets.
“The majority of owner-occupiers fixing around this time were locking in rates around 2 per cent, if not less,” Tindall says.
Commonwealth Bank, the nation’s largest lender, estimates that $95 billion worth of its loans will expire this year. For Westpac, the second-largest lender, the amount is about $86 billion.
Strategies for those facing the fixed rate cliff include:-
Contact your lender or mortgage broker at least two months before your rate matures to discuss options. Refinancing continues to hit record highs as those applying for new loans falls, says Nerida Conisbee, chief economist for Ray White Real Estate.
Find out the revert rate and negotiate a reduction. The revert rate is typically the standard variable rate for that product and is often much higher than discounted rates offered to new borrowers. Use what the lender is offering new borrowers as a benchmark. “Many lenders will offer better rates to borrowers with more equity in their house or an unblemished repayment history,” Crellin adds.
Start saving to create a buffer or pay down more of the variable rate if the loan is split. “Most fixed loans have caps on extra repayments, so find out what they are,” Tindall says. “If you hit the cap, you can build up your war chest in a savings account.”
Consolidate and pay down debt, such as car loans and credit card balances. It will be easier to control one recurring debt payment with one interest rate, suggests Crellin.
Extend the term of your loan back to the original term of, say, 30 years even if you’ve been paying it off for five years. Crellin says it means lower monthly repayments but more over the life of the loan.
Consider refinancing options but beware the additional costs, such as mortgage discharge fees, valuations, break costs and legal fees. There’s also lender’s mortgage insurance if your equity is less than 10 per cent. Competing lenders are offering cash incentives of up to $10,000, depending on loan size. Tindall adds: “Owner-occupiers who own 30 per cent or more of their homes are in the driver’s seat when it comes to rates. Use this advantage to haggle with your existing lender, or if you are planning a switch, your new one.”
Do a budget to estimate whether you can afford the new interest rate. This involves tallying expenses and calculating remaining cash flow. It enables you to identify where money is being spent and where cutbacks can be made.
Review discretionary spending, such as credit card debts, eating out and multiple subscriptions. Alternatively, consider lowering costs by changing utility and phone providers.
Consider ways to increase earnings, such as renting out part of the property, starting a side business or asking for a pay rise.
If you fear repayments will still be too high, contact your lender’s financial hardship team. “A trusted broker is a good first port of call,” adds Tindall. “If you have trouble making the repayments, call the lender as soon as possible.”