Three in four homeowners fear fixed rate cliff due to RBA actions

Homeowners on fixed rate loans are growing more anxious about their ability to meet their repayments once their loans revert to higher variable rates due to recent RBA actions.

A glut of fixed rate loans are set to expire this year.

Homeowners on fixed rate loans are growing increasingly anxious about their ability to meet their repayments once their loans revert to higher variable rates.

A survey of more than 1,000 Australian home loan customers found that 71 per cent were concerned about coming off their fixed term rate.

And 55 per cent said they already felt stretched financially, according to the polling by Honeycomb Strategy on behalf of Mortgage Choice.

Mortgage Choice CEO Anthony Waldron said older homeowners would be among those most vulnerable to expiring fixed rate terms.

While just under two third of respondents said they chose to fix their rate to protect against interest rate rises, this figure increased to 81 per cent for customers over the age of 55.

“We’re concerned about how many older Australians, who may be on a pension or budgeting for retirement, are approaching the so-called ‘fixed-rate cliff’,” Mr Waldron said.

Many of those most vulnerable to rate changes are older Aussies.

“If they’re not financially prepared for the increase in their repayments, it will come as a nasty shock.”

Data from the ABS shows that 43 per cent of 55–64-year-olds and 13.4 per cent of people aged 65-74 are paying off a mortgage.

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After nine consecutive interest rate hikes, Australian borrowers with a fixed-rate home loan will likely face a significant increase in mortgage repayments when their loan term ends.

Recent data from the Reserve Bank of Australia (RBA) shows that hundreds of billions of dollars in fixed-rate home loans will expire by the end of 2023.

The RBA predicts that these borrowers could see their home loan interest rate increase by 3–4 percentage points when their fixed term ends, and they move to a variable rate.

Many homeowners told pollsters that they don’t know what they would do at the end of their fixed-rate period.

“Financial stress is already an issue, and each interest rate rise exacerbates the problem further,” Mr Waldron said.

“Home loan repayments are already the biggest monthly expense for 80 per cent of people.”

The survey came on the back of a poll by comparison site Finder, which found about one in eight mortgage holders across Australia missed a repayment in the last six months.

Among those who said they missed a repayment, just under half had missed multiple monthly repayments.

The leading cause for missing a repayment was rising interest rates.

Finder.com.au home loans expert Richard Whitten said mortgage stress was on the rise.

“Households are really struggling with the monthly outlay and some just can’t keep up,” he said.

Many of those who fixed their loans bought during the market peak of 2021 and early 2022 and have higher debt relative to their income.

“Nine consecutive rate hikes from the RBA means an Australian with the average loan size of around $600k will be paying roughly $1,000 more per month compared to what they were paying in April last year.”

Mr Waldron said those on soon-to-expire fixed rates should be exploring ways to reduce their repayments.

“If you’re on a fixed rate, your broker can help you put together a plan so you’re prepared for what happens when you reach the end of your loan term. There are plenty of options available to you that will lessen the financial impact. Refinancing may be a good option for you, or your broker can try to negotiate a better rate with your current lender.”

Originally published as Three in four homeowners fear fixed rate cliff due to RBA actions