Fixed Rate Cliff: Mortgage Market Outcomes

Just last year, gloomy headlines swirled about the ‘fixed-rate’ cliff that Australians would eventually fall off, when fixed rate mortgage terms came to an end – plunging millions into financial uncertainty.

But it looks like we’re already here – and there doesn’t seem to be a flurry of panicked selling like initially predicted.

According to CoreLogic, the bulk of fixed rate terms were taken out in July and August of last year, jumping to 46 percent as homeowners fixed their mortgages to avoid the effects of cash rate hikes.

A whopping 880,000 of those loans were expected to fall off their fixed rate this year, and another 450,000 are expected to expire next year.

With the middle of the year now having come and gone, we’re still yet to see any significant spike in mortgage arrears, and as APRA data points out, arrears are still well below pre-pandemic averages.

Mortgage arrears tracking low

Data from the March quarter shows that total arrears remain contained at 1.2 percent, compared to a pre-pandemic average of 1.7 percent.

Loans in arrears australia property update

Head of residential research at CoreLogic, Eliza Owen, says that while arrears remain capped, new listings have risen slightly – possibly due due to a range of factors including five months of consecutive house value growth.

“Overall, it seems official data on mortgage stress has not seen a blow out in arrears amid the expiry of low fixed-term loans. As home values rise, the risk of default also remains low,” said Ms Owen.

“However, as what is likely to be the last of the RBA’s rate hikes is passed through to households with a mortgage, there may be a mild deterioration in housing market conditions if new listings decisions continue to rise.”

The CoreLogic report acknowledges that while there is a lag at play, mortgage resilience is undoubtedly shining through.

And some of the major banks seem to be echoing a similar sentiment.

Just last month, NAB CEO Ross McEwan fronted a House of Representatives Standing Committee on Economics.

He spoke of the resilience that Australian mortgage holders have demonstrated, even after help has been offered.

“Since interest rates started rising in May 2022, we have contacted more than half a million customers to see how they’re doing. This includes 8,600 home loan customers who we thought were most at risk, but after checking in with them, surprisingly only 14 wanted immediate help,” said Mr McEwan.

“The number of customers in hardship, while growing, remains below pre-covid levels.”

Calls to increase housing supply

Mr McEwan points to the end of the cash rate hiking cycle as a welcome reprieve that will provide stability and certainty to mortgage holders.

He also called for urgent action on the housing front, to combat rapid price increases and dwindling affordability.

“Without more supply, demand will inevitably push up prices further,” said Mr McEwan.

“Respondents to our residential property survey say fast-tracking planning permissions and development would be the single most effective way to reduce Australia’s housing shortage.

“A coordinated effort by state and territory governments to introduce faster, simpler and more consistent processes for approving land development and residential construction will lift supply.”

ANZ customers faring well, too

ANZ CEO Shayne Elliott shared similar insights at the parliamentary meeting, saying that financially, most customers seem to be managing despite the difficult times.

“Our latest figures were published in May and these showed that, while some customers are struggling, most are managing their way through the current financial pressures,” said Mr Elliott.

“For example, only 6 of every 1,000 dollars in our Australian home loans portfolio was overdue by more than 90 days.

“This is better than before the pandemic.”

It was widely believed that the fixed-rate cliff would have negative effects on house prices, if a rush of forced sales were to hit the market. But yet again, that prediction seems to have been a false one.

Now with most of the rate hikes behind us, and promising signs that we could even be at the peak of the cash rate, homeowners can finally breathe a sigh of relief.

They can also look forward to the likelihood of rate cuts in the near future, as all four big banks predict cuts to take place next year, or 2025 at the latest.

“The good news for mortgage holders is that this period of economic slowdown will also take the RBA closer to its long term inflation target, which could be the impetus for a reduction in the cash rate in the second half of 2024, as predicted by most major banks,” said Ms Owen.

It seems that the imbalance between supply and demand has floated the housing market against dampening factors. Australian property has proven to be yet again incredibly resilient.