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Finsure data shows that, from its portfolio of just under $100 billion in loans, about 20% are fixed, and that about $4 billion in loans will move off cheaper fixed rate deals over the next 12-month period.
About 40,000 customers of the network will soon face a rate increase of circa 400 basis points.
Bednar said rate increases, which have resulted in customers losing almost 30% of their borrowing capacity, mean that some will definitely be unable to afford or refinance their existing debts.
This means that certain classes of borrower are likely to face a ‘very tough’ period ahead.
“It is going to be very tough - in some demographics and regions more than others,” Bednar said.
“First homebuyers in some areas that pushed to invest in their first home with higher LVR loans and who do not have much equity or cash - they will be under a lot of pressure.”
One major bank is already receiving approximately 65,000 hardship claims a month, Bednar said, which makes the current situation worse than that experienced during the GFC.
With many households already having made adjustments to spending as interest rates have increased, some borrowers are facing “serious decisions” about their loans and property.
“There is also still almost certainly one or two interest rate rises left before the Governor of the RBA puts things on hold – so this is going to get worse before it gets better,” Bednar said.
‘Mortgage prisons’ – where customers are unable to refinance due to serviceability calculations – will also be a reality for 30-40% of borrowers coming off of this round of cheap fixed rates, he said.
Of the rest, some will be able to take advantage of new bank products that allow refinancing without new serviceability calculations where borrowers can demonstrate existing repayment histories.
However, Bednar expects about 15% of cheap fixed rate borrowers may end up utilising hardship provisions to try and hold on to properties – though this would compound their interest over time.
“We are looking at three cohorts of borrowers, and not all of them will end up with a fairy tale ending where they will be able to walk away from it all better off,” Bednar said.
Helping customers in hardship could be a win for the broker channel
The difficulties facing fixed rate borrowers and others in the market may mean brokers have a chance to reinforce their value proposition and shore up these client relationships for life.
“There is no doubt that some borrowers will go through a traumatic time in their life and may have no-one to turn to – they will be dealing with a lot of stress and strain,” Bednar said.
“If brokers foster relationships with customers, when they get through this, they will look back on those that helped them through dark times, and brokers will be at the front and centre of that.”
Bednar said there was also an opportunity to reset the broker customer relationship, following a period where online rate price shopping and cashbacks had driven a “race to the bottom”.
Finsure offers brokers support through weekly masterclass sessions that include providing scripting and processes to help engage customers through the tough conversations they are likely to have.
Bednar said communicating up to six months to eight months ahead of fixed rate expiry is key, to help customers begin to adjust to higher repayments before they are forced to move to a higher rate.
Additional broker support includes Finsure’s AI SureScore tool, which can help brokers determine the likelihood of an application being approved before application using big data, as well as business analytics tools that can identify any trail commission drop offs, an early indicator of hardship.
