The Changing Landscape of Fixed Rate Loans
It is noteworthy that Australian borrowers have only experienced a fraction of the 4.0% increase in the official cash rate (OCR) thus far. However, the CBA predicts that this number is poised to rise to approximately 85% by the end of the year, revealing a significant shift in borrowers converting their fixed-rate mortgages to variable.
This shift is said to unfold further in mid-2024 when the bulk of fixed-rate mortgages are set to be rolled-off. CBA estimates that Australian households will devote approximately 10% of their disposable income to servicing debt. This statistic marks a historic high in debt servicing costs for Australian residents.
Insights from an Economic Analyst
A recent tweet by Macquarie Group senior economist, Justin Fabo, captures the current state of affairs quite succinctly. He points out that despite the cash rate rising by 400 basis points, the average interest rate on outstanding variable-rate owner-occupier home loans has risen by a marginally lower 337 basis points (as of July).
A further analysis by Fabo indicates that the rise in interest rates for all outstanding home loans, on average, is around 278 basis points. This suggests that the average interest rates paid by Australian mortgage holders will continue to climb in parallel with the expiration of fixed-rate mortgages.
Rate Hike Speculations
Given the inherent tightening in the mortgage market due to the expiration of fixed-rate loans, it is highly probable that the Reserve Bank of Australia (RBA) will not increase rates again in this particular cycle. The upcoming challenges faced by Australian borrowers are indicators of an evolving mortgage landscape that will inevitably affect the decisions made by the RBA.
