In Australia, fixed home loans and variable house loans have always been a contentious topic of debate between mortgage brokers and the rest of society.
While variable home loans have been the dominant option for many Australians, for the first time ever, fixed rates are currently lower than variable and, in actuality, the lowest in Australian history.
An Australian mortgage broker told Australian Broker that he had seen “9 out of 10 customers choose a fixed rate in recent weeks”.
“The rates are just too attractive,” the Australian mortgage broker told Australian Broker, “Owner-occupier rates starting with a 1 in front is something that we’ve never seen before, and most people don’t think that a variable rate can go below what’s on offer.”
“If you look at the lowest rate, whether it’s 1.79% or 1.84%, it’s very attractive, and sometimes these variable rates are hovering around that 2.5% mark with your major lenders, so there’s a good 0.5% amount of difference between fixed and variable for owner-occupiers paying principal and interest.”
“It’s a lot more than ever before taking that fixed rate, and it’s a pretty safe bet in my mind. The worst-case with a fixed rate is, as we always say, that the variable rate goes below it, and you’re at a disadvantage. But realistically, people can afford these loans with rates starting with 1, it’s very attractive, and they’re taking it.”
Even though fixed-rate homes loans are a gamble by default, Australia is one of the world’s leading gambling countries, so it is quite fitting for our culture. Although even the best mortgage brokers Sydney think that the current low fixed rate is a safe bet.
What has Caused this Change?
No mortgage broker in Australia can genuinely predict why or how the market changes.
However, influence is definitely coming from The Reserve Bank of Australia, according to mortgage brokers. As the Reserve Bank has avoided altering the cash rate for some time now, maintaining it at 0.1 per cent (as of September 2021).
Despite many in the sector boosting their rates, the central bank has maintained its stance on the price of money, prompting consumers to shift to fixed-rate loans.
According to current ABS statistics, fixed-rate loans have increased from less than 20% of the market to more than 40% of the market, indicating that rates will rise sooner than predicted.
Plus, the cash rate freeze was expected, says the best mortgage brokers Sydney, as the continued lockdowns resulting from the Covid-19 pandemic were a justification for keeping borrowing prices low. Many Australian mortgage brokers predict that when the Australian lockdowns start to ease back, the market will see a powerful recovery in most sections.
Mortgage brokers Australia predict rates to stay steady for the next two quarters, pending the outcome of the economy in the first half of next year.
Although mortgage brokers are uncertain about how the recovery will play out on a national level, not all states are on the same page about the Covid vaccination numbers they want to achieve and when the borders will open up freely again. This uncertainty impedes national recovery, which will likely result in a wide range of economic numbers and growth.
What is a Fixed-Rate Home Loan?
A fixed-rate loan has an interest rate that is fixed for a set period, generally one to five years. This loan provides you with the security of knowing exactly what your monthly payments will be and the assurance that they will not increase.
Advantages:
- Guaranteed rate, if interest rates rise, your repayments won’t.
- Enables you to budget more effectively because you know exactly how much your monthly repayment is per month.
Disadvantages:
- Reduced flexibility as you might be charged if you leave within the fixed-rate timeframe.
- Extra repayments may incur a fee or be limited.
What is a Variable Home Loan?
According to mortgage broker tradition, the most common form of home loan in Australia is the standard variable loan. The interest rate on a variable home loan fluctuates based on the Reserve Bank’s decisions, and it is susceptible to alter at any time.
Advantages:
- Repayments decrease when the official interest rates also decrease.
- Often standard variable loans offer you more flexibility and product features.
- Allows the customer to move around to different lenders without a penalty for breaking a fixed contract.
Disadvantages:
- Your repayments will increase when the official interest rates rise.
- Usually, the standard variable product rates are slightly higher because you have access to more features.
How Do I Choose a Home Loan?
Of course, mortgage brokers can offer clients other types of home loans – including inter only, line of credit, low-doc, non-conforming, family pledge, etc. – but fixed-rate and variable have always been the most dominant ways Australians repay their home loan.
As a homeowner, it’s essential to think about your personal needs and wants when choosing a home loan, not just the interest rate. Following mortgage broker advice, it is necessary to evaluate the many forms of house loans available on the Australian market, whether purchasing your first home or your next investment property.
Each home loan has distinct characteristics that appeal to different types of homeowners, so make sure you evaluate all of the benefits and drawbacks with your mortgage broker before deciding on the best home loan for you. The better the fit, the happier you will be, and the more money you will save over the loan’s life.
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They expand choices and boost competition between market lenders, which pushes them to provide superior customer service and more competitive mortgage pricing.DEA’s report is The Value of Mortgage Broking and it was published 24 July 2018.
It also discusses the impact broking has on Australia’s economy, lender value proposition, and customer value proposition.The report was released in the face of the increased scrutiny of the broker sector (the ordeal of broker remuneration), the focus of the PC’s (Productivity Commission) review of the Australian financial system competition and the financial services royal commission.The aim of the DAE report is to provide the most “up-to-date body of information” about the mortgage industry to broaden the information about the role of mortgage brokers in the market for policymakers.
It is broken up into four parts.The dimensions and the history of the brokering industryThe value mortgage brokering brings to the economyThe benefits and outcomes for consumersThe value potential of brokers for lendersBringing data forward from a vast range of sources such as the ASIC, MFAA (Mortgage & Finance Association of Australia), the ABS, and articles from The Advisor, their report uncovers new data they collected from a nationally represented survey of 1,635 brokers (independent and those who work in a group setting), consults with industry professionals and participants, and a focus group workshop that included mortgage brokers.The Key FindingsThe DAE Survey said:On average, sole trader mortgage brokers earn an income of $86,417.Broker businesses with more than one broker reported earning an average of $119,838.73 per cent of working mortgage brokers work full-time.90 per cent of sole traders work full-time.23 per cent of brokers’ customers are first-time home buyers.Over half (57.3 per cent) of brokers’ clients are residential owner-occupiers.The average mortgage broker has 13.8 years of experience.70 per cent of the broker’s business is from their existing client base.The brokering industry sustained 27,144 full-time jobs in 2016-2017.There are around 7,115 people working in supporting roles in the brokering business.70 per cent of mortgage brokers are credit representatives.64 per cent of mortgage brokers have training and education above the minimum entry qualifications – Certificate IV in Finance & Mortgage Brokering.The brokering industry supplies $2.9 billion to Australia’s economy every year.More discoveries included the confirmation that lodging loan applications and the management of said process all the way to the settlement require the most time from brokers (only 12 per cent of their time is spent after the settlement).
through branches, mobile lenders, and over the telephone)”, using the statistics from the MFAA that showed that the mortgage brokers’ share of new residential loan settlements attained 55.7 per cent by value during the September 2017 quarter.More insights from the report included how mortgage broker encourage competitive pricing and boost consumer’s options and services.
They are intermediaries that provide consumers with information about the mortgage products available and the process to follow in applying for a mortgage.”It continues, “Mortgage brokers also provide lenders with an additional channel to arrange loans.
Mortgage brokers increase choice and competition between lenders, leading to better service levels and competitive mortgage pricing.”“Mortgage brokering is also an industry in its own right, providing direct employment opportunities and supporting employment in other industries… A continually improving mortgage brokering sector will be good for consumers, lenders and the economy.
