the adviser logo

Consumer group warns about the dark side of rate cuts

by Staff Reporter7 minute read
The Adviser

Borrowers have been warned they could eventually fall victim to mortgage stress if they get too excited about the “record-low” fixed rates now on offer.

The Consumer Action Law Centre said borrowers should remember that although banks have recently cut their fixed rates, they may be higher once the fixed terms end.

“The banks are clearly looking for business, but mortgages are long-term financial products and unless you take a range of financial scenarios into account you may find yourself in trouble,” spokesperson Penelope Hill said.

“Some people like knowing what they’ll be paying a few years in advance – it provides certainty and helps them plan ahead.

“But as part of that planning they should look at how they would cope with a change in the market or with a drop in income.”

Ms Hill said banks also had a role to play by adhering to responsible lending practices.

“Even in a low interest rate environment, the lender must ensure the loan meets the borrower’s needs and does not cause undue hardship – this should include considering the prospect of interest rate changes,” she said.

[Related: FBAA sounds warning about cheap mortgages]