Borrowers are at risk of being lured into fixed-rate products that undermine their long-term interests, FBAA managing director Peter White has warned.
According to the latest data from comparison site Canstar, lenders are offering fixed rates as low as 2.09 per cent for owner-occupiers and 2.34 per cent for investors.
As a result, a growing number of borrowers have recently opted for fixed-rate products, with the latest data from Mortgage Choice revealing that demand for fixed-rate home loans surged almost 8 per cent over the month to April.
However, Peter White, managing director of the Finance Brokers Association of Australia (FBAA), has encouraged brokers to flag the long-term risks associated with fixed-rate home loans to clients attracted by their low rates.
Mr White warned that borrowers could be lured into such products by banks “trying to buy business”, without considering revert rates and other fees and charges tied to the fixed-rate product.
“We want to ensure that our clients are not trapped,” Mr White said.
“Borrowers may eventually find themselves with a variable interest rate that is not the best for their particular circumstances, and they may be prevented from changing lenders due to lender fees, new valuation costs and maybe even LMI insurance.”
Mr White stressed that borrowers should seek assistance from brokers to help them make more informed choices from a variety of options.
“Borrowers will never consider these options if they only look at the immediate fixed rate,” he said.
The FBAA head added that the incoming best interests duty (BID) would legally require brokers to seek credit solutions that are best suited to their clients’ financial circumstances.
“Banks have no legal obligation to act in the borrower’s best interests. And if they can seduce [borrowers] with a low starting rate, they will. And they can whack [them] later,” he added.
“It is imperative that borrowers obtain a thorough examination of their needs and desires for a mortgage that is not unsuitable for them now, but more importantly in the coming years.”
[Related: Bank hikes fixed home loan rates]
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