WA broker expects more refinances ahead
5 minute read
As the cash rate increases and lenders respond by increasing mortgage rates, some brokers anticipate more borrowers will begin to switch lenders.
Following the Reserve Bank of Australia’s (RBA) decision to increase the cash rate by its greatest amount in over 20 years up 50 bps to 0.85 per cent, lenders have responded by hiking mortgage rates and rolling out incentives to tempt mortgagors.
While economists had been certain a rise was on the cards, most had assumed the RBA would either choose from a 25-bp or 40-bp increase, leaving many industry players watching for the impact ahead from the faster-than-anticipated rate hike.
Recent award winner Casey Stein, who took home Western Australia’s Best Finance Broker at The Adviser’s Better Business Awards WA, expects there will be a move away from purchase contracts and into a refinancing landscape.
“When interest rate rises are coming through the way they are – that’s a key indicator from the RBA they want things to slow up. That’s going to impact everyone’s costs,” Mr Stein said.
“The biggest cost they’re going to have is their mortgage so [borrowers] are going to look at that and go ‘how are we going to cut this back’.”
Despite the expectation that borrowers will make the switch from lenders, a recent survey of 1,000 borrowers, commissioned by Mortgage Choice found 61 per cent said they are “cautious about refinancing” in case they end up worse off.
However, the vast majority of respondents (80 per cent) agreed their home loan was their largest monthly expense.
Indeed the increasing cost of living will sting for many Australians, but Mr Stein said it isn’t a “bad thing” following the runaway house prices across the country.
With Western Australia’s borders closed for most of the pandemic and the FIFO workforce ordered to remain in the state Mr Stein said these factors alongside other economic considerations drove house prices following a fairly long “stagnant” period.
“Things had been quite stagnant in growth, a lot of investors were just holding on and waiting for property prices to return so they could offload… probably bad investments at the time,” Mr Stein said.
As properties started heating up in Western Australia and borders opened, investors sold, leaving many tenants to look for alternative accommodation, which further drove demand for housing, he said.
“I think it almost led to a bit of a FOMO phenomenon… they were starting to make some crazy decisions on house purchase prices,” Mr Stein said.
While Western Australia didn’t see the same major spikes in housing values, like Sydney and Melbourne, it also hasn’t experienced the small falls.
CoreLogic’s monthly housing chart revealed in the three months to April this year, both Darwin and Perth reported a median dwelling value lift of 2.2 per cent and 2.4 per cent. Meanwhile Sydney and Melbourne, dropped by 50 bps and 10 bps respectively.
Brokers can help through education
Indeed Western Australia’s economic outlook appears strong, with the state growing “7.2 per cent during the pandemic” according to the government. But as many Australians haven’t experienced rate hikes like this before, Mr Stein said brokers can play an important role.
“The broker market go out of their way to educate homebuyers about all the risks associated, about thinking about affordability and future life events to account for it,” Mr Stein said.
“But you very quickly get into a routine in life… and when this sort of thing comes along and you’ve been doing the same routine for the last year… it hasn’t really readied them for what these rate rises will mean.”
He said the conversation around fixed rates and educating clients about risks has become more important than ever. And as circumstances change people will need to either “borrow less, earn more or spend less”, adding the latter two were often the most difficult to change.
While brokers can do everything within their powers to ready clients for unexpected events, he added borrowers have a role to play in truth telling.
“Be honest with us, be honest with yourself,” Mr Stein said.
[Related: Lenders begin hike rates]