the adviser logo

The fixed-rate mortgage cliff and how brokers can help

by Adrian Suljanovic8 minute read

Many borrowers are reaching out to brokers to help them prepare for the impending fixed-rate “mortgage cliff”. 

The Adviser recently spoke to Wave Money founder and managing director John Flavell; Kelso Finance Mortgage Brokers director, Sandy Kelso (winner of the Best Customer Service (Individual) award at the Better Business Awards Queensland 2023); and Aussie Home Loans mortgage broker, Alex Ralec, on how they’ve been helping borrowers prepare for the incoming fixed rate cliff.

According to the Reserve Bank of Australia (RBA), around one third of the outstanding housing credit is for fixed-rate loans, and approximately half of that - estimated to be around $350 billion over 800,000 loans - is due to roll off in the coming year.

Many borrowers will be coming off loans that were written two or three years ago, when interest rates were at emergency pandemic settings. As such, they may be rolling onto a variable rate loan that is two or three times the rate they would have been paying on a fixed term (for example, coming off a 1.95 per cent fixed rate loan to a 6.00 per cent variable rate loan).

Ms Kelso has been advising her clients to “focus on what they can control” such as building up savings in emergency funds; paying down any high-interest debt (personal loans, credit cards); reviewing subscriptions, bills, and providers; and cutting down on consumer spending where possible.

“I aim to be the trusted adviser and expert in the field for my clients and give them the confidence that we are going to put the next best steps in place for success and wealth creation,” Ms Kelso said.

“I’m keeping up to date with [economists’] forecasts and giving updates to my clients regularly. I maintain a very close relationship with my clients so communication is key.

“I have a clear view of when my clients are rolling off fixed and I proactively contact the client six weeks in advance to start getting next steps in place — new valuations, pricing discounts, comparison lenders, borrowing capacity etc.”

Mr Ralec stated that there’s constant communication with customers every six months, including sending out text messages to clients whose fixed rates are about to expire.

“We’re trying to be proactive in getting in touch with clients each month so they can think about the next step, Mr Ralec said.

“The mortgage cliff has already started with plenty of our borrowers, and thankfully we’ve been able to help pretty much all of them. All [others] have taken substantial pricing discounts and got their rates reduced.”

Wave Money recently announced that it would be offering a 2.5 per cent interest rate buffer only to the facility being sought out as well as a no interest rate buffer on any existing loans for its clients, instead of the standard 3 per cent buffer being offered by other lenders.

Mr Flavell stated that non-bank lender understands that borrowers need more than just lower interest rates in order to navigate the current economic environment.

“The fixed rate cliff is a significant challenge for many borrowers, and we recognise the need for direct relief to ease the cash flow pressure they will be feeling,” Mr Flavell said.

“We believe that providing borrowers with the flexibility to move to or stay on interest-only repayments can provide the greatest relief for those facing significant increases.”

[RELATED: Non-bank lender to offer mortgage cliff relief] 

alexander ralec john flavell sandy kelso ta vmrski


You need to be a member to post comments. Become a member for free today!
Read the latest issue of The Adviser magazine!
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more