Hundreds of thousands of mortgage holders face a jarring surge in repayment costs in the coming months as their ultra-low fixed-term plans wind down.

Borrowers who locked in super-cheap mortgages during the coronavirus pandemic are fast approaching a storm that is likely to result in much steeper monthly repayments.

Analysts and finance experts are tipping home loan costs to rocket for those who “fixed” their mortgages at an historically low rate during the early stages of Covid-19 as their generous terms expire over the next year or so.

This is what many analysts refer to as a “cliff”, with Canstar Finance Expert Steve Mickenbecker warning that as many as 500,000 borrowers could hit that point overnight.

“Only those who still have time left on their fixed rate loan term will be spared,” Mr Mickenbecker says.

“Increases to repayments may not sound like a big stretch, but with wage growth having fallen behind the cost of living rate increases will add to the financial pressure on many households.”

The number of people taking out super-low fixed rate loans understandably surged in 2020 as the RBA slashed borrowing costs to help the economy keep ticking over.

The RBA also repeatedly forecast there would be no need to hike rates until 2024.

But to the shock of Governor Philip Lowe and his board – if not the economists who warned of such an outcome – a stronger than expected surge in inflation has brought forward the hiking cycle.

War in Ukraine and ongoing Covid-19 supply chain disruptions forced the RBA this month to pull the trigger on the first of what is likely to be a number of rate hikes in the coming year.

The cash rate target on May 3 was lifted for the first time in a decade, rising by a stronger-than-expected 25 basis points from 0.1 per cent to 0.35 per cent.

Several more hikes are expected to arrive over 2022 and 2023 with Westpac tipping the cash rate target to peak at 2.25 per cent next May.

Essentially, this means those in 2020 who took out a fixed-term loan for three years – generally the most common time period – now face a sudden leap in costs when those conditions expire in 2023.

Mr Mickenbecker says a common scenario could be seeing people move from a fixed rate of near 2 per cent to a market where rates are 5 per cent or higher in a day.

The Big Banks in recent months repeatedly hiked the cost of fixed interest rate loans in the face of mounting inflationary pressures and the increasing likelihood of RBA action.

RateCity.com research director Sally Tindall prior to the May RBA hike said people who fixed their loan for years for under 2 per cent would be “laughing all the way to the bank” on the back of the hikes, knowing they’re immune to any rate changes for at least another couple of years.

However, she said “anyone coming off a fixed rate is going to be in for an almighty shock when they see what the banks have on offer”.

Source link


The above content is from google feed with the source link mentioned. If you wish to remove the content from here then contact us and it will be removed within 24 hrs.