Younger borrowers are more likely to reach out to a mortgage broker to ask for assistance on how to navigate the fixed-rate cliff.

According to a study by Resolve Finance, more than half of millennial (56%) and Gen X (54%) borrowers are planning to use a broker to help them with their loan terms after their fixed-rate term ends.

These figures represent a significant increase from five years ago when only 42.5% of millennials said they would use a mortgage broker.

This is generally reflected in APRA data, which shows the value of new third-party-originated loans amounted to $89.8 billion in the December 2022 quarter, a sharp increase from $54.3 billion in December 2019.

Resolve Finance managing director Don Crellin said the mortgage broking industry has been bracing for the fixed-rate cliff.

“It’s already been a record period for us with 34.62% of total settlements coming from refinancing since rates began to increase in May 2022 — this doesn't include activity our brokers undertake to negotiate a better rate to help our borrowers stay with their existing lender,” he said.

One challenge for brokers, however, is how they can encourage “older” borrowers to seek help.

The study showed that only 17% of fixed-rate customers over the age of 65 plans to use a broker to review their loan terms. Around 14% said they would just do the refinancing themselves while more than half said they would do nothing.

“We are seeing evidence that those age groups who tend to use brokers may better withstand interest rate increases as they are more likely to refinance immediately and less likely to stay with their current lender on uncompetitive rates,” Mr Crellin said.

Another interesting finding from the study is the likelihood of borrowers to reach out to brokers based on location — fixed-rate borrowers in Perth (58%) and Sydney (52%) are most likely to use a broker while those in the regional market do not feel the need to.

Should the fixed-rate cliff be a concern to borrowers?

CoreLogic head of research Eliza Owen said the impacts of rate hikes on fixed-rate borrowers will start to intensify by April this year.

“Stretched serviceability could be compounded by an increase in the unemployment rate this year along with higher than budgeted household costs due to high inflation,” she said.

“A rise in distressed sales could also put added downward pressure on property values — if people are forced to sell their home in a declining market, there is the added risk of being unable to recover mortgage debt from the sale of a home.”

However, Ms Owen said basing it on the experience of variable-rate borrowers amid the rate hikes so far, fixed-rate borrowers have enough on their buffers to absorb the impacts.

“Borrowers that rolled onto variable rates quickly transferred large savings into offset and redraw accounts. This suggests that fixed-rate borrowers have also been stowing money away, even if they haven’t had the offset and redraw facilities to put those savings into,” she said, citing the RBA’s Financial Stability Review late last year, which indicated the current cohort of fixed-rate borrowers have a similar income to variable rate holders.


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