Yesterday afternoon’s cash rate decision, or lack thereof, came as no surprise to the broker channel. While Melbourne Cup day has, in the past, meant changes to the price of money, the RBA stuck to its guns and kept the cash rate at 0.1%.
The big news, however, was that the 2024 schedule that the RBA has steadfastly kept for months is now out of the window, with a new target yet to be confirmed beyond a general target of 2-3% inflation.
For brokers, the lack of a cash rate change is generally good news, as it keeps the market ticking along, but industry knowledge is now that things are likely to change sooner rather than later.
With that in mind, Australian Broker spoke to channel experts on how brokers should be informing their clients of the current industry situation, and how they could best prepare for the moment when interest rates do go up.
“There’s a couple of things from a broker’s point of view,” said John Kolenda, managing director at aggregator Finsure. “It’s important to know what is going on in the market. You engaged in discussions with consumers and you need to be able to provide them with insights into possible scenarios that might affect them in the future.”
“This is likely one that is on the horizon, and they should be mindful of anticipating some sort of rise and the impact that it might have on their monthly repayments.”
“Secondly, in preparation for making assessments for consumers, the benchmark assessment rates are likely to go up and monthly repayments will impact consumers and how comfortable they will be with rises, and how it will affect their borrowing capacity and commitments.”
“It’s very important to keep things relatively simple for consumers. This is largely looking at the potential that rates will rise off the back of the cost of funds. As they increase, there will be pressures on the banks to increase their rates.”
“Every 25 basis point increase would have an impact on consumers, not only their borrowing capacity but also repayments. Brokers need to be able to take them through that journey.”
“For every 25 points, you need to do simulations to show them the impact. Should your home loan increase by 25 basis points, this is the monthly repayment; if it goes up by half a percent, this is what it is.”
“It’s more about getting them prepared, getting them to understand their position and then the real costs to their monthly repayments.”
Jay Ahluwalia, mortgage broker at TrueSavings, added that it was vital to manage expectations for clients.
“As interest rates have started their climb back up from the historic lows, we believe it’s now more important than ever to discuss all the options and considerations with our clients,” he said.
“As their trusted home loan expert, we need to sit down with them to run projections on their options. For example, is the client with a variable loan really making the most of the offset facility or are there advantages to locking in a fixed term now?”
“Can the fixed terms that expire within the next 12-14 months be renegotiated to extend the term? With so much uncertainty in the market, a conversation can provide a lot of clarity for our customers.”
