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The MASSIVE fixed rate cliff and why it matters to YOU

Have you heard about the “Fixed Rate Cliff”? Let me enlighten you because even if you don’t have a fixed rate, or a home loan you need to hear this…

The RBA estimates that around $350 billion (yes, with a “b”) of fixed rate loans that were written at super cheap rates are expiring, or have already expired, in 2023.

AND a third of those are expiring in the next 3 months alone… For context that’s 880,000 households!

Many of these households have not had to worry about the last 11 rate rises but they do now. Mine was one of those households. My own 1.84% fixed rate just expired and overnight my rate became 5.5%. Thats an increase of 50% on my monthly payments.

At this point you might fall into one of the below 4 categories: You have a fixed rate that is expiring and are worried about the rate going up so much. This will put strain on your household cashflow and to make things worse your current bank is likely making you pay more than they offer new customers. Not. Cool. You already have a variable rate so you’re currently feeling the pain. You are considering purchasing. You have property but are not selling anyway, so who cares! Right? No matter which category you fall into the reason I am telling you is that the pain from massive increases in interest rates for a household can only be remedied in a few different ways. You either lower your household costs (a LOT) You get more income from a higher paying job or increasing rent You refinance to a better deal thus lessening the monthly pain somewhat OR you sell.

I can help you with only one of those. For the others you are on your own. Lower household costs? Stopping Netflix and takeaway coffee will help but it aint 50% of your mortgage (unless you drink as much coffee as me)… Finding a higher paying job? Easier than it sounds… Increase the rent on your investment property? Totally justified in current market but how much can your tenants bear? Refinance to lower payments? This is our forte. But it takes an expert to navigate the current mortgage market. Don’t go this one alone. Chat to us.

Sell? Which brings me on to my main point here

If loans are harder to get due to higher rates and increased household expenses then there will be less people in a position to buy. If even a portion of the fixed rate households need to sell then there will be more stock on the market.

I don’t need to tell you what that might mean for house prices if less buyers but more sellers.

Lower house prices affects the LVR on loans (Loan to Value Ratio) so even a refinance might no longer be an option soon.

If you’re a buyer then you might just wait it out to see what happens in the next few months AND that’s precisely what I am seeing. Less buyers but also not as much stock (yet).

Even though the data tells you property prices are rising it’s important to remember that there’s lower supply currently. A 24% drop between April 2021 vs April 2023 in Melbourne (10% 2022-2023) – source

Is this all doom and gloom? Absolutely not. If you’re a long term investor/buyer with some patience then now might very well be the time to snag a bargain with house prices down from their highs. It will take some creativity from a mortgage professional but could be well worth it.

If you are considering refinancing now might be the time to pounce just in case values go down and that impacts your equity position and the ability to extract some $$ or lower those payments.

Now, it’s worth mentioning that none of this constitutes financial advice and that the above is not inevitable, because with the potential peaking of interest rates (my crystal ball still ain’t working so can’t be sure) AND the relaxing of some lending guidelines for refinancers (ask me about streamline refinance) we might just dodge a bullet.

Maybe just a pinch of some much needed good news could bring some confidence back into our property markets and that’s exactly what I’ll be praying for.

Until then, if you want to discuss any of the above or a totally diff Q, I’m all ears


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