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Interest rates have been at record lows for the last few years and during this time there has been much discussion about when next they will rise.
However, in recent weeks, both major lenders and non-major lenders have increased their fixed rates across the board for one-, three- and five-year terms. For this rise to have happened with all lenders, there are strong indications that the cost of funding their lending has increased.
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An interest rate rise isn’t something brokers have had to consider for some time and it can be a sensitive subject for clients as their repayments are likely to rise. It might be tempting for brokers to avoid bringing this issue up with clients but brokers have a duty of care to clients to keep them informed and to let them know their options.
At 1st Street we have been contacting clients, informing them of changes in the market and giving them the option to fix part or all of their loan. When there is a rise in fixed rates, it is likely that there will also be an increase in variable rates. Any additional repayments may affect a client in terms of their budget and by fixing some or all of their loan, they can protect their repayments from rising.
When giving clients the option to fix a loan, it is a broker’s responsibility to make clients aware that the benefit of fixing does have its potential disadvantages. The key aspects for clients when fixing a loan is that they will have no offset account and if they decide to pay down a loan before its expiry, it is possible that break fees will be incurred.
Ultimately, clients have had a great opportunity to make the most of the low rates and if the variable rate does rise, it’s likely that it will be a gradual rise so clients shouldn’t feel alarmed. For brokers that have been using sensible serviceability calculations and keeping clients well informed, there should be little concern from clients and a rise in rates will likely be accepted as something that was ‘bound to happen’.
