Borrowers not ready for rising rates: Mortgage Choice

Around 17 per cent of mortgage holders indicated that they would be concerned if home loan interest rates grew by just 1 per cent, while 48 per cent expressed concerns around a 2 per cent ascent.

David Zammit, national sales director, Mortgage Choice has calculated a 2 per cent increase in rates for some would nearly double the interest that they are charged each month.

One in two survey respondents said they could afford to pay an extra $201 a month and only 33 per cent of borrowers could afford to pay an additional $401 or more per month.

Around 31 per cent of borrowers indicated they were worried about rate rises, with those who had most recently purchased their first home and Sydneysiders being the most concerned, followed by residents in Melbourne, Adelaide and Perth.

Young people (aged 18 to 35) were the most concerned age group, with 89 per cent agreeing, followed by 36 to 64 year-olds (81 per cent).

But the Reserve Bank has “made it clear that there are further rate hikes to come”, Mr Zammit said, with most lenders have been quick to pass on the first increase to the cash rate in May.

“In this environment, it is important borrowers are informed so they’re not overpaying,” he said.

“Given how complex the lending landscape is with hundreds of products in the market it is near impossible for borrowers to know whether they have a good rate unless they use the expertise of a broker who has this information at their fingertips.”

He also noted that first home buyers had never experienced a rising rate environment and will need to be more proactive about their mortgages and who they engage with on the matter.

“If you’ve fixed your rate in the last couple of years and your fixed-term is coming to an end soon, you’ll need to decide whether you want to fix your rate again, or whether you’d rather choose a variable rate home loan,” Mr Zammit said.

“With so many options on the market, it’s important to have expert guidance. Especially given that in many cases the difference between a fixed rate and the variable rate can be 1 per cent to 2 per cent.”

The Mortgage Choice survey has contrasted against commentary from the Reserve Bank of Australia (RBA) and economists at ANZ, who believe mortgage holders won’t be shaken by a climbing cash rate.

Their reasoning is that borrowers were already maintaining higher loan repayments than required through the pandemic and they were storing more funds in offset accounts and redraw accounts.

ANZ’s economists also believe Australians are set to see accelerated pay rises in the year ahead.

More recently, ANZ chief executive Shayne Elliott noted that consumers’ savings are at record levels, saying “people are well prepared for it”.

RBA analysis had also found that home owners had built up their cash buffers as a “side effect” of surging house prices.

In March, RBA governor Philip Lowe expressed confidence in the ability of APRA’s lending standards to protect consumers, noting that potential borrowers are now being assessed with a higher serviceability buffer rate.

However, others, such as Mark Hand, former ANZ group executive for retail and commercial, have expressed concerns that there will be pain for borrowers who have never experienced a rate rise.

Meanwhile, the majority (90 per cent) of the Mortgage Choice survey respondents who used a broker said they were confident that the broker had their best interests at heart, versus 74 per cent of respondents who felt the same about their lender, who had gone direct.

[Related: Hit to home owners should curb rate hikes: AMP]